The stock market crash means there are a number of bargain shares available for long-term investors to buy. Of course, an uncertain economic outlook may mean finding them is more challenging now than it was previously.
However, by focusing on sectors with growth potential that are unpopular among investors, and identifying businesses with sound strategies, you could build a diverse portfolio of stocks that’s capable of delivering high returns in the long run.
Bargain shares in unpopular sectors
Buying the best bargain shares in unloved industries could be a sound means of obtaining favourable risk/reward opportunities. Clearly, some sectors may be unpopular among investors for good reasons, such as weak growth outlooks. However, in some cases, investor apathy towards the wider stock market means industries with growth potential are undervalued.
Clearly, it’s currently difficult to identify which sectors can recover from the current challenges facing the world economy. However, many trends of recent years look set to continue in the coming years. For example, an increasing use of technology in our everyday lives, a rising demand for healthcare-related products and services, and a switch towards greener forms of energy are likely to persist.
This strategy may not necessarily lead to portfolio growth in the near term. However, the track record of the stock market shows that buying bargain shares in sectors with growth potential while they’re unpopular among investors could increase your chances of generating high returns in the long run.
The best bargain shares aren’t necessarily those with the lowest valuations. Certainly, a wide margin of safety helps to make any stock a ‘bargain’. But the quality of its operations also has a large bearing on its prospects from an investment perspective.
Therefore, buying the strongest businesses in a specific sector could be a sound move. To achieve this goal, it may be necessary to consider factors such as financial strength, growth strategy, and the size of a company’s economic moat. But they may have changed significantly after the coronavirus pandemic. This could create new opportunities for businesses that previously didn’t have especially attractive business models.
Assessing the quality of a range of companies may require time and effort on the part of the investor. However, it could be worth it if it means that you’re able to identify bargain shares that ultimately produce the highest returns in the long run.
With a wealth of information available via annual reports, trading updates, and forecasts, it’s certainly possible for an investor to accurately gauge the quality of a business versus its sector peers. Doing so could make it easier for you to find the best shares available after the market crash that may boost your long-term financial prospects.
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.