The best shares to buy now are probably the businesses capable of withstanding ongoing economic volatility. After all, not only can these firms weather the storm, but they’re more likely to be in a stronger position to capitalise on opportunities in the eventual recovery.
A robust balance sheet paves the way to outmanoeuvre competitors and steal market share. And that can have a profoundly positive impact on a company’s performance, as well as its share price.
Given enough time, an expertly managed enterprise could turn a relatively modest investment into a far larger sum. And by successfully deploying this investment strategy consistently, investors could end up with a seven-figure portfolio.
Good stocks may still face hurdles
Regardless of the quality, every company in the world has challenges to overcome. And when inflation and interest rates are on the rise, the difficulty is only increased.
Debt is becoming more expensive, elevating the costs of servicing outstanding loans. Meanwhile, weak investor sentiment and depressed stock valuations mean that raising capital through equity isn’t an ideal solution either. As such, businesses in general will have to be self-reliant, at least in the short term.
Therefore, when searching for the best shares to buy, investors need to look for two primary characteristics.
- Liquidity: does the firm have sufficient cash reserves to fund operations and expansionary projects in the short run?
- Free cash flow: does the firm generate excess cash flow from operations to build up, or bolster, a cash reserve over time?
If a corporation has both these traits, it’s more likely it will have more financial flexibility to outplay its rivals. Of course, there are plenty of other factors to take into account before making an investment decision. But filtering out stocks with weak liquidity can help to quickly eliminate duds from consideration.
Don’t be fooled
After isolating businesses with cash war chests, it’s essential to verify the source of this capital. Companies can often go to extreme solutions out of desperation. And those can be a giant red flag.
For example, suppose a company has been busy liquidating inventory at a discount to rapidly raise cash. This solution is obviously unsustainable. And therefore if economic conditions don’t improve in the short run, the firm’s source of liquidity could quickly run dry.
In other words, investors need to check that an organisation’s source of funds is sustainable rather than temporary. Otherwise they may end up investing in shares that are definitely not the best ones to buy now.
Making a million
Picking high-quality stocks at sensible prices is a proven strategy for building wealth. And even if investors only manage to match the 8% historical average returns of the UK stock market, that’s still more than enough to build a £1m portfolio.
Investing just £500 a month at this rate of return can, theoretically, hit seven figures within 34 years. For individuals who have recently joined the workforce, that can set them up for quite a comfortable retirement.
Of course, stock market volatility may accelerate, or extend this process. And there are never any guarantees with investing. However, by consistently picking the best shares to buy, the odds of success are far greater.
