2 shares to buy for a stock market recovery

It has been a turbulent time in the stock market recently. Our writer looks for the top shares to buy to get ahead of the pack.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Warren Buffett at a Berkshire Hathaway AGM

Image source: The Motley Fool

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

UK shares had a torrid week with the FTSE 100 index falling by almost 6%. But when there’s panic, there could be opportunities. That’s why I’m looking for the best shares to buy right now.

It started with the collapse of Silicon Valley Bank, the sixteenth-largest lender in the US. And it continued with concerns regarding Credit Suisse’s financial situation.

By the end of the week, the Swiss National Bank provided £45bn of funding to Credit Suisse. But the stock market remains on edge.

Fear and greed

Market psychology plays an important part in stock market investing. Mr Market sometimes behaves irrationally, and fear pushes share prices lower.

Warren Buffett coined the now popular phrase, “Be fearful when others are greedy and greedy when others are fearful”.

When investors are fearful it can sometimes lead to undervalued stocks. A bit like a shopping sale.

Bear in mind that stock market panic isn’t always unfounded. For instance, some concerns regarding bank difficulties are warranted.

A sharp rise in interest rates in the US and Europe has created challenges for many banks. But it remains to be seen if they can be sufficiently contained.

Finding shares to buy

Nevertheless, history shows that eventually all challenges are overcome in some way or form. And stock market tumbles lead to recoveries.

To get ahead of the pack, I’d like to find the best shares to buy now that are likely to swiftly recover.

To do so, I’d focus on high quality shares. By this I mean they should demonstrate a sustainable competitive advantage. It’s what Warren Buffett would call a moat, and it could be in the form of technology, a popular brand, or solid patents.

I’d also look for a double-digit profit margin, low levels of debt, and plenty of cash flow.

Top pick

Right now, if I had spare cash, I’d buy shares in Games Workshop (LSE:GAW). This fantasy miniatures specialist boasts a phenomenal return on capital of over 50%. That’s an excellent sign of a quality business, in my opinion.

It’s a well-run global company that focuses on long-term success. Its competitive advantage comes from defendable intellectual property.  That creates a solid barrier to entry for would-be competitors.

Bear in mind that in a cost-of-living crisis, spending on this hobby could slow. That said, one of its most exciting areas of growth right now is licencing.

In recent months, Games Workshop struck a deal with Amazon to help turn its characters and stories into TV shows, movies, and merchandise.

This is an exciting partnership for the business. And despite being an established company for many decades, I feel the story has just begun.

Undervalued stock

If I had spare cash, another share that I’d buy ahead of a stock market recovery is Hargreaves Lansdown.

Investment platform Hargreaves Lansdown should benefit from the government’s recent abolition of the lifetime allowance. I’d expect inflows to SIPP accounts to rise. It faces competitive pressures, but it’s a high-quality and cheap stock.

It has a return on capital of a whopping 50%, a price-to-earnings ratio of just 13, and a 5% dividend yield. That all sounds good to me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Harshil Patel has positions in Amazon.com. The Motley Fool UK has recommended Amazon.com, Games Workshop Group Plc, and Hargreaves Lansdown Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

What kind of return could I expect by investing £100 monthly in a Stocks and Shares ISA?

Using a Stocks and Shares ISA to avoid capital gains tax could grow a £100 monthly investment into a second…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Can strong operational momentum keep the Informa share price rising?

FTSE 100 company Informa has been performing well, but this may be just the beginning of a multi-year trend for…

Read more »

Market Movers

What’s going on with the Britvic share price?

Jon Smith flags up why Britvic's share price is surging on Friday, but believes that the company is in a…

Read more »

Cheerful young businesspeople with laptop working in office
Dividend Shares

2 super-cheap passive income shares I’m eyeing up right now

Jon Smith discusses two of his favourite passive income shares in the banking and property sectors, both featuring yields above…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

Up 37.5% in just 12 months, I think this is one of the FTSE 100’s best investments

Our author says this FTSE 100 company is likely to keep on capitalising on the AI and data boom. But…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

This UK share just spiked 15% on bid news. Can we bag a quick profit?

UK share prices are having a good 2024, so far, and this one's already up 39%. Two takeover bids in…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

I’m ‘blowing a raspberry’ at Raspberry Pi shares. Here’s why

Some early investors have made great profits from Raspberry Pi shares. But our writer's questioning whether the 'easy money' has…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Dividend Shares

Here are brokers’ new price targets for Legal & General and National Grid shares

City analysts are generally very positive on National Grid shares. But they're not quite as bullish on the Legal &…

Read more »