Buying the best UK shares after the stock market crash may not sound all that appealing to many investors. After all, there is a very real threat of a prolonged period of economic weakness that could act as a drag on the performance of many industries.
However, through buying financially-sound companies in sectors that have solid long-term growth prospects, you can capitalise on low valuations currently on offer. Over time, this may improve your financial prospects, and increase your chances of making a million.
UK shares with solid finances
With the continued threat of a second market crash, it may be crucial to buy UK shares that have sound finances. They may be in a better position to survive a period of low economic growth that could cause weaker companies to fold.
As such, assessing a company’s financial strength through focusing on its financial statements could be a good starting point for all investors. Businesses with modest debt levels, strong cash flow and ample interest coverage during a period when profitability may be lower than previous guidance could stand a better chance of outperforming their peers.
Furthermore, UK shares that have wide economic moats may be less affected by difficult operating conditions. An economic moat may consist of factors such as strong customer loyalty, lower costs than rival businesses or a unique product. Companies that have wide economic moats may be able to benefit from a likely long-term economic recovery to a greater extent than their peers.
Investing in long-term growth sectors
Working out which UK shares will deliver strong growth over the long run is a challenging task at the present time. The prospect of a second market crash means that many investors are focused on the short run, and their return of capital.
However, by focusing your portfolio on industries with long-term growth potential, you may be able to outperform the wider stock market. For example, growth sectors may include e-commerce activities, healthcare provision and technology. Investing in sectors with clear growth potential may mean that you do not purchase bargain shares, but it may allow you to take part in a likely economic recovery that allows higher valuations to be more easily justified.
FTSE 100 and FTSE 250 recovery potential
While it may seem unlikely at the present time that UK shares will deliver a long-term recovery, the past performance of indexes such as the FTSE 100 and FTSE 250 suggests this is very likely. They have both posted new record highs after every previous bear market.
Therefore, a market crash generally provides opportunities to buy high-quality businesses at low prices. By focusing on financially-sound business in growth sectors, you can improve your portfolio’s performance and even obtain a £1m+ valuation.