The prospect of a sustained long-term stock market rally may seem somewhat distant to some investors at the present time. After all, the 2020 stock market crash was a relatively recent event. Moreover, an uncertain economic outlook, Brexit and the coronavirus pandemic are risks set to remain in place over the coming months.
However, investing money in shares today could be a shrewd move. A stock market recovery is likely to take place in the long run. Especially judging by the past performances of the FTSE 100 and FTSE 250. With many high-quality companies trading at low prices, investing £500, or any other amount, in shares could be a profitable move.
Identifying the best shares ahead of a stock market rally
A stock market rally has always taken place after previous downturns. As such, the FTSE 100 and FTSE 250 are likely to make new record highs in the coming years. And that would reward those investors who buy shares when they trade at lower prices.
Among those stocks that could respond most positively to a long-term bull market are high-quality businesses. They may have solid financial positions compared to their peers. And, as such, that could enable them to invest in new products, or in acquiring rivals so they can produce higher profit growth.
Equally, the best stocks may have competitive advantages. And that could lead to more reliable profit increases in what could prove to be an improving period for the world economy.
Therefore, investing money in high-quality companies ahead of a sustained stock market rally could be a shrewd move. Not only could they stand a better chance of surviving short-term risks, they may provide greater scope for capital appreciation in the long run.
Buying cheap shares to make gains in a market recovery
As well as buying the best shares ahead of a likely long-term stock market rally, purchasing undervalued companies could be a shrewd move. They may offer the greatest scope for capital gains as the FTSE 100 and FTSE 250 rise in value. Especially since they’re starting from a low base.
Some sectors are currently unpopular among investors due to the challenging operating conditions they face in the short run. For example, bank shares are generally cheap, energy companies trade at lower prices than their long-term averages, and travel & leisure stocks are priced at extremely low levels in many cases.
Certainly, some companies in those sectors may not survive the short run to benefit from a long-term stock market rally. However, those businesses that can overcome weak short-term operating conditions could make strong gains in the long run.
As such, through identifying the best businesses in unpopular sectors, it may be possible to purchase the most attractive companies at the present time. Over the coming years, they could produce market-beating returns that have a positive impact on an investor’s portfolio.