Despite enjoying a rally since October, the London Stock Exchange is still filled with tremendous stocks to buy at a discount. But time may be running out for investors to capitalise on such widespread bargains.
With the economic outlook improving for the UK and inflation getting under control, analyst predictions are becoming increasingly bullish. In fact, The Economy Forecast Agency has recently revised its predictions for the FTSE 100 to reach beyond 9,600 points by the end of 2024!
If this prediction is accurate, that represents a roughly 25% income surge to the UK’s flagship index. And that means buying up the best stocks today could be a fantastic move.
Finding the best stocks in 2024
Stock picking is a complex process with no easy answer. Investors have to review countless factors, most of which are dependent on specific circumstances. For example, an analyst needs to take wildly different approaches when investigating a pharmaceutical business versus a mining enterprise.
Yet, one recurring characteristic that helps differentiate winners from losers is the presence of competitive advantages. By having a significant sustainable upper hand against rival firms, companies are more likely to capture and protect market share.
However, just because an enterprise has a wide competitive moat doesn’t mean it’s automatically a winner. Careful analysis of the group’s financials, management, and strategy are all still essential as these may reveal hidden weaknesses that turn a fantastic-looking investment opportunity into a wealth-destroying trap. Even with all the discounted valuations for investors to choose from, 2024 is no different.
A pinch of salt is needed
As exciting as the prospect of double-digit gains is, investors need to keep expectations in check. For starters, forecasts are notoriously unreliable, especially for an index containing over 100 businesses. There are countless factors influencing the performance of the FTSE 100. And most of these aren’t likely to have been captured by analyst predictions due to widespread assumptions.
Moreover, the prediction of hitting over 9,600 points later this year is a best-case scenario. A lot of things have to go right for this threshold to be reached, and if they don’t, the index may only grow to around 8,350 points. That’s still an 8.5% increase versus the current level, but it’s still a stark difference.
In other words, the forecast appears to have quite a wide range of possible outcomes indicating uncertainty – something that rarely bodes well for investors.
All of this is to say that relying solely on a forecast to make investment decisions is a terrible idea. However, these predictions can still be useful tools in discovering potential opportunities for further investigation. And even if the FTSE 100 falls short of expectations this year, the long-term performance of high-quality UK shares continues to look promising, especially at today’s prices.
