The Motley Fool‘s Paul Summers pointed out last week that America’s S&P 500 index has outperformed the UK’s FTSE 100 by a wide margin. According to Summers, the US index has risen by more than 100% since 2016 and the Footsie by around 5%.
But for as long as I can remember, valuations tend to be higher in the S&P 500. And that’s why I think the UK market is a good place to go shopping for recovery shares.
Here in the UK, we don’t have as many fast-growing and highly-rated tech companies. But we do have plenty of cyclical enterprises and cash-generating defensives. And some of them are among the best UK stocks to buy now.
Finding the best UK stocks to buy now
And as the world goes on to win the battle against the coronavirus pandemic, I reckon London-listed stocks have a good chance of performing well in the years ahead.
In the UK stock market, we have the opportunity to buy stocks offering growth at a reasonable price. And that’s the kind of strategy that’s been so successful for the great investor Warren Buffett.
I think there are many promising opportunities on offer right now. But I’m not constraining my search to companies big enough to be listed in the FTSE 100.
I’d run the calculator over stocks in the FTSE 250 mid-cap index and in the small-cap indexes as well. To me, size is less important than the quality of an enterprise and its opportunities to grow.
Right now, several UK stocks look worthy of further research with a view to buying and holding for the coming years. For example, I’m keen on the valuations and forward-looking prospects of several smaller businesses operating in cyclical recovery sectors. I’m thinking about stocks such as drilling and mine site services specialist Capital.
Carrying out deeper research before buying
I also like the look of time-critical logistics and support services provider John Menzies and supply chain solutions operator Wincanton.
But they’re not the only stocks on my radar. Specialist bank and asset manager Investec looks promising, as does home collected credit lender Morses Club.
And I reckon the prospects for instant-service equipment operator Photo-Me International and baked goods manufacturer Finsbury Food are interesting.
Of course, it’s possible to lose money on shares like these, even though they sport decent growth prospects and modest valuations. All businesses have the potential to disappoint their shareholders as well as the possibility of delighting them. And I wouldn’t buy any of these shares without carrying out deeper research.
But if my further research doesn’t turn up any nasties, I’d be inclined to embrace the risks and buy some of the shares to hold for the next few years.
For me, these are the type of opportunities to consider among UK stocks for the ongoing economic recovery.
Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares 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.