The stock market crash could improve your prospects of making a million. It has caused a number of high-quality businesses to trade at cheap prices that may undervalue their long-term prospects.
Through searching for such companies in unpopular sectors, and by analysing their financial updates, you could capitalise on low valuations across the stock market. Over time, this strategy may boost your returns and increase your chances of obtaining a seven-figure portfolio.
Searching in unpopular sectors
Following the stock market crash, some industries are relatively unpopular among investors. They are often those sectors that face challenging near-term outlooks, or that may struggle to adapt to a rapidly-evolving world economy following the coronavirus pandemic.
For example, sectors such as banking and energy are relatively unpopular at the present time. Banks face the prospect of an extended period of low interest rates that could negatively impact on their profitability. Similarly, demand for oil and gas has fallen this year, which has caused energy companies to report declining profitability in many cases.
While their challenges may continue over the short run, their low valuations prompted by the stock market crash could mean there are buying opportunities on offer for long-term investors.
Focusing on financial statements
As mentioned, the stock market crash has put pressure on the financial positions of many companies. Therefore, it is perhaps more important than ever to ensure that any stock you are thinking about buying has sound finances through which to overcome a tough period for the economy.
Through analysing a company’s annual report, you can ascertain its financial position and how likely it is to survive a period of slower growth. You may also gauge how easily it can adapt to a period of rapid change in consumer tastes, and whether it has the right strategy to return to strong growth.
Through buying unpopular companies with sound finances and solid strategies, you could enjoy strong capital growth potential in the coming years. Annual reports and recent updates are available for free online. This means that any investor can identify unpopular sectors, such as banking and energy, and then select the most attractive businesses to buy within them.
Making a million after the stock market crash
The stock market crash is not a one-off event. Equity markets have experienced bear markets and downturns fairly regularly over recent decades. Even with them included, investors can obtain a high-single-digit annual total return simply from purchasing a diverse range of shares.
Assuming an 8% annual return, an investment of $100,000 would become worth over a million within 30 years. However, through buying cheap shares, you could obtain a higher rate of return that improves your chances of making a million as the stock market recovers in 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.