Finding the best UK shares to buy today may prove to be a difficult task due to the FTSE 100’s unclear future. The index could experience a further market crash after its rebound, which may put additional pressure on the share prices of many of its members.
However, now could be a good time to buy as a result of the index’s long-term prospects. It has a solid track record of recovery, which may produce high annualised returns for investors who buy stocks today.
Through focusing on financially-sound businesses with solid track records of performance during weak economic periods when they trade on low valuations, you could generate improving returns as the FTSE 100 recovers.
Many FTSE 100 companies are dominant businesses in their respective industries and sectors. However, this does not necessarily mean that they have sound financial positions. They may, for example, have taken on too much debt during the decade-long growth period for the economy that now leaves them in a relatively weak position should sales fall.
Therefore, it is imperative to focus on the financial strength of any UK shares you purchase at the present time. Through analysing their debt levels, liquidity and cost structures, it is possible to ascertain their chances of overcoming the challenging market conditions that could lie ahead.
Investing in the FTSE 100’s strongest companies from a financial perspective may reduce your risk of loss. It could also improve your long-term return prospects as you largely avoid the index’s weakest businesses.
FTSE 100 stocks could experience a period of weaker financial performance over the coming months, as a slowing world economy weighs on their growth opportunities.
Therefore, it may be prudent to buy UK shares that have been able to produce positive profit growth in a variety of economic conditions. For example, they may have successfully adapted their business model and structure to overcome previous challenges such as the global financial crisis.
Through buying companies with solid track records of profit growth, you may be able to focus your capital on those businesses that have a higher chance of thriving in a changing global economy.
FTSE 100 valuations
Identifying FTSE 100 shares that offer good value for money could boost your portfolio’s long-term outlook. Buying cheap stocks has historically been a sound means of outperforming the wider market through taking advantage of its cyclicality, as well as its recovery potential.
Although cheap FTSE 100 shares could remain undervalued for some time should the economic outlook fail to improve, the index’s solid track record of returning to previous all-time highs means that a shift to a sustained bull market is likely. Owning high-quality businesses ahead of such a period could allow you to benefit from a stock market crash through generating high returns in the coming years.
Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.