Every investor will have different views on what are the best UK shares to buy after the recent stock market rally.
However, for me, that list may contain those businesses that have so far failed to match the stock market’s recent pace of recovery. For example, they may trade at low prices that could mean they have scope to deliver market-beating returns over the long run.
Through searching for such companies with low valuations in unloved sectors that offer long-term recovery potential, it may be possible to capitalise on a long-term stock market rise.
Searching for the best UK shares in unpopular industries
As is often the case, some sectors of the UK stock market are currently more popular than others. While this may mean that some investors immediately search the most sought-after industries for the best UK shares to buy, in reality the most unpopular industries may be the best place to start. They could contain the cheapest and best value shares at the present time. Over the coming years, they may offer the greatest potential for capital growth.
As such, industries such as financial services, energy and travel & leisure could be a good place to start looking for undervalued stocks. They are likely to face tough operating conditions in the short run, which may be a reason for their unpopularity among investors. However, those companies that have the financial strength to overcome short-term risks, such as through having modest debt levels and large amounts of cash, could deliver attractive share price growth in the long run as a result of their low valuations.
A long-term stock market rally
Clearly, there is no guarantee that even the best UK shares will recover from the current economic crisis. The coronavirus pandemic is an extremely difficult and challenging event that is likely to have significant effects on the future performance of the economy. It could derail the progress many businesses were making prior to 2020.
However, those companies that can adapt to the changes it is likely to bring could position themselves for long-term growth. As such, buying companies that have sound strategies to adapt to changing consumer tastes and new technology may be a sound move. They may be able to remain relevant in a rapidly-evolving world economy.
Finding such companies can be achieved by focusing on their latest investor updates, such as annual reports and trading updates. The best UK shares could, for example, have modified their strategies to protect their financial position and even to capitalise on low valuations within their industry through acquisitions. Furthermore, they may have invested in new areas that could catalyse their growth rates. Over time, this ability to adapt to changing market conditions could provide scope for capital growth that leads to an outperformance of the wider stock market.