The Motley Fool

How I’d aim to find the best shares to buy in today’s stock market rally

Image: GlaxoSmithKline

Finding the best shares to buy in the current stock market rally isn’t easy. Some companies have flown over the past year and are now starting to look overvalued. Nobody wants to jump on board a momentum stock just as it runs out of steam.

Even though the FTSE 100 now trades above 7,100, I still reckon it’s possible to pinpoint a spread of the best shares to buy today, without overpaying. I’d look for companies with healthy long-term growth prospects throughout the investment cycle.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

I’d start by making a beeline for unpopular sectors. These may have fallen out of favour, for all sorts of reasons, but could swing back as bargain-seekers spot an overlooked opportunity.

Is Glaxo one of the best shares to buy?

Ironically, given we’re still in the middle of a pandemic, pharmaceutical stocks appear to be out of favour. GlaxoSmithKline now trades at a bargain 11.6 times earnings, but yields a thumping 5.92%. To me, it looks like one of the best shares to buy on the FTSE 100, provided you can hold long-term and are willing to be patient. I really like buying high-quality companies trading at discounted prices.

We’re looking for the best shares to buy, so I favour companies with strong, healthy balance sheets and low net debt. I also look for hidden nasties, such as hefty company pension liabilities, which weigh down companies such as BT Group, BAE Systems and Centrica.

Sectors swing in and out of favour. Last year, banks and oil companies suffered as the economy floundered and people stopped travelling. However, they’ve been two of the best performers last year as vaccines hopes rise. But bargains are harder to find. For instance, the Lloyds Banking Group share price is up two thirds in just six months. 

Investors also have to decide how much risk they’re willing to bear. The Rolls-Royce share price has been hit hard by the pandemic. That could make it one of the best FTSE 100 shares to buy today, but its troubles could worsen if the world doesn’t resume flying soon.

There are still bargains on this FTSE 100

While I look at valuations such as the price/earnings ratio, I’d handle with care. A stock may look cheap, but it could face hidden challenges, such as a new competitor on the block. It’s also worth seeing whether they’ve a wide economic moat, such as a strong brand or product, to cement their market position.

These are just a few of the factors to consider when looking for the best shares to buy in today’s market. This won’t shield me from a short-term stock market crash. Because, when that happens, good companies are typically sold off with the bad.

However, by choosing wisely, I hope to come out on top over the longer term. Stock markets always recover from a crash, given time, but some shares recover faster than others.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline and Lloyds Banking Group. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.