Choosing the best shares to buy now is no easy task. The FTSE 100 is flying on Covid-19 vaccine news. Valuations have started to creep up as optimism reigns.
But many stocks remain volatile. Investors are having to struggle with deciding which offer true value and which are cheap for good reason.
Still, I’ve got a cracking option at the top of my list of the best shares to buy now.
Not my best shares to buy now
It’s difficult to think of a worse combination of the weighty anchor of debt and declining sales.
While they may be popular with day traders and short sellers for their volatility, I’m swerving away from Cineworld (LSE:CINE) shares right now.
The long-term outlook for cinemas isn’t good. This isn’t just my opinion, it’s borne out by the numbers. Now production companies know they can make just as much money from streaming films as they can by releasing them physically.
Take the new Borat film, for example. Amazon Prime paid $80m for the exclusive rights and tens of millions of viewers saw the comedy in the days after its debut.
The pandemic has accelerated a lot of long-term trends and the shift from physical to digital film releases is one of them.
When it comes to my best shares to buy now I also want to avoid companies with gargantuan debt. Cineworld has been significantly downgraded by ratings agencies, which means its £6.6bn debt pile will be very expensive to service. I can see this as a serious drag on profits for years to come.
One of my best shares to buy now
In terms of recovery stocks poised to benefit from the possibility of a market reset, I can think of few better options than Morgan Sindall (LSE:MGNS).
At a forward price-to-earnings ratio of 9.8, the FTSE 250 construction and refurb company is cheap. But crucially, Morgan Sindall is expected to grow its earnings by a whopping 26% next year. This definitely adds weight to it being one of my best shares to buy now. I won’t buy very cheap shares just for the sake of it. What if the share price continues to fall because a company doesn’t make any revenue?
I also look at the PEG ratio when I’m seeking the best shares to buy now. This is a metric favoured by value investing legends like Peter Lynch, whose book One Up On Wall Street was a great inspiration.
A PEG ratio of 0.5 suggests Morgan Sindall shares are undervalued.
Dividends return
And in even better news out on 4 November, chief executive John Morgan reinstated Morgan Sindall’s interim 21p per share dividend. Morgan Sindall’s average daily cash position was much stronger at £150m+, said the CEO, ahead of expectations.
MGNS remains one of my best shares to buy now because of its sensible cash retention too. The company now has 7.6 times dividend cover, which bodes well for long-term payouts.
“All group activities are now fully operational again and delivering high levels of productivity,” he said, adding, “We welcome the Prime Minister’s clear statement that construction activity should continue through the new lockdown restrictions in England for November.”
Full-year earnings are now expected to beat the top end of previous guidance. So it’s clear to me why this is one of my best shares to buy now.