Different investors have different strategies for selecting the best stocks to buy now. There are too many for me to discuss in one go, but one of the most common strategies is to focus on buying either growth stocks or value stocks. These are two separate camps, but at the moment I’m in the growth stock side. Here’s why.
Growth versus value
Growth stocks are shares in a company that typically has strong momentum behind it. The pace of growth, be it in revenue, employees, or products, is higher than average. This usually pulls the share price higher as well, making it attractive for investors looking for a high return.
Fast growing companies in the right industries can perform very well. This ticks a large box when trying to find the best stocks to buy now. However, to be compensated for this return, growth stocks usually have high volatility. It can also be difficult to know what the fair price of the stock is, as the value might be placed on potential future earnings many years down the line.
On the other hand, value stocks are ones that are typically undervalued and out of favour in the short run. Usually the metric of looking at the share price relative to earnings (P/E) is used to classify what is a value stock.
Value stocks can be attractive to an investor like myself as over time, the share price should return to a fairer (higher) value. This should represent a profit to me versus my purchase price. However, value stocks can stay undervalued for a long period, and so patience is needed.
Finding the best stocks to buy now
In terms of looking for the best stocks to buy now, I think the time is right for growth stocks. I feel the UK economy is starting to really turn on the engines. The Bank of England expect GDP growth of 5.5% during Q2! In this stage of an economic cycle, growth stocks should outperform.
If I wanted to get even more specific, I’d want to target the growth stocks within the areas that are leading the way. I expect areas such as banks, healthcare, and some travel/tourism to be at the front of the pack. So I’d be filtering for companies here that are already starting to put out strong Q1 trading updates, and identify these as the best stocks to buy now.
Another reason why I prefer growth over value right now is due to the difficulty with identifying true value. The pandemic has hit many stocks hard, and so earnings for 2020 are negatively impacted.
It’s hard for me to say right now which of these companies is undervalued. This is because some of them might simply never return to pre-pandemic levels. If the business model has fundamentally shifted over the past year, the share price is unlikely to recover. Due to this risk, I’d prefer to stay away from trying to pick value stocks right now.
So to find the best stocks to buy now, I’m looking for growth stocks in popular sectors to invest my money.
jonathansmith1 has no position in any share mentioned. The Motley Fool UK has no position in any share 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.