The stock market crash has caused some investors to sell shares to buy gold. While this plan may have been successful so far, over the long run, the stock market’s recovery potential may mean that a portfolio of high-quality companies outperforms the precious metal.
With many stocks continuing to trade at bargain prices, now could be the right time to focus on identifying the best shares to buy for the long run. They may offer the highest return potential, as well as the lowest risks.
Buying the best shares after the stock market crash
Buying cheap shares after the stock market crash is a logical strategy. It means that you purchase assets at low prices, and could benefit from their recovery over the long run.
However, not all cheap stocks will recover from their current low levels. Some businesses may, for example, fail to overcome short-term economic challenges. Other companies could lack the right strategy through which to adapt to changeable market conditions. Therefore, it is important to buy high-quality companies that trade at attractive prices.
This may not necessarily mean that they are the cheapest shares around after the recent stock market crash. However, it can be wise to pay a premium for a higher-quality business that is more likely to deliver on your long-term profit goals.
Identifying the best shares today
The best shares to buy today could be those that remain unpopular following the stock market crash due to external reasons. In other words, they face a difficult set of operating conditions brought about by the global economic downturn. They are likely to have sound finances, solid growth strategies and competitive advantages that can turn their present weak financial performance into growing profitability over the long run.
Unearthing such companies may be best approached by searching within unpopular sectors, or industries that are currently facing a tough near-term outlook. For example, financial services firms may be negatively impacted more than other industries by a weak economic outlook. Similarly, energy companies, retailers and consumer goods businesses may need to make changes to their business models to benefit from future economic growth. Companies within those sectors may trade at low prices, and be in a position to record improving performances in the long run.
Buying undervalued stocks today
While gold may be an appealing defensive asset to hold after the stock market crash, its long-term growth prospects may be less attractive than a portfolio of the best shares. Its high price and a likely improvement in investor sentiment towards the stock market may limit its prospects.
Therefore, now may be the right time to build a portfolio of stocks that can deliver impressive returns and improve your financial position 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.