Buying the best stocks after the recent market crash may seem like an impossible task. After all, it’s currently unclear what the ultimate impact on a range of industries will be following the coronavirus pandemic.
However, by focusing your capital on companies with strong track records, sound finances and that operate in sectors with encouraging long-term growth prospects, you may be able to obtain high returns in the coming years.
The current economic challenges facing many companies and sectors may not follow the exact same pattern as they have done in the past. For example, the last two financial crises were caused by a technology bubble and a banking crisis respectively. The present difficulties are likely to affect a larger range of businesses.
However, some companies may be better prepared than others for challenging trading conditions. They may, for example, have outperformed their sector peers in previous economic crises. Buying such companies could be a means of generating relatively strong performance that’s rewarded by a rising stock price. Investor sentiment towards businesses that have strong track records of growth in varied economic conditions may improve at a relatively fast pace. And that could cause their stock prices to make gains.
The best stocks with sound finances
The past decade has generally been a strong period for the world economy. Therefore, many businesses with weak balance sheets have been able to survive. But the the world economy is likely to experience a tough period. So many businesses with high debt levels, low interest cover and weak cash flow may be unable to overcome their current difficulties.
Therefore, when seeking to buy the best stocks available, investors should focus on the financial strength of a company. Businesses with strong balance sheets may be able to improve on their market position prior to the market crash. That could be achieved by purchasing their rivals at low prices, or by simply filling the void left by weaker peers that don’t survive the challenging outlook.
Strong sector growth
Some sectors could experience a period of slow growth over a prolonged period. For example, sectors such as retail and travel & leisure could be faced with highly challenging trading conditions if there’s a second wave of coronavirus later in the year.
As such, focusing your capital on the sectors with the most attractive long-term growth outlooks could be a shrewd move. Demand for healthcare is likely to rise over the long run as factors such as an aging world population persist. Likewise, technology companies could prove popular as trends over recent years look set to continue.
Through investing in the most attractive sectors, you may find it easier to unearth the best stocks currently available. It may not lead to high returns in the short run, but could enhance your financial prospects over the coming years.
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.