Identifying the best growth shares to buy now can be a difficult task. After all, growth stocks by their very nature are priced based on their future prospects. Therefore, an investor must make a judgment on their capacity to produce increasing profitability.
Furthermore, growth shares are often priced at high levels. This can mean they lack scope for capital appreciation.
However, by focusing on unloved industries with sound long-term prospects, it may be possible to identify the most appealing growth opportunities in this stock market rally.
Industries that offer the best growth shares to buy now
Some of the best growth shares to buy now may be trading in industries that are unpopular among investors. For example, they may currently be experiencing disruption caused by coronavirus. This could negatively impact on their performances in the coming months.
However, over the long run, they may be able to deliver strong growth that lifts profitability across the sector. For example, some healthcare companies are currently struggling to deliver rising sales and profitability. This is because of reduced operations as hospitals prioritise scarce resources.
While this may lead to disappointing returns in the short run, they could benefit over the long run. That’s because of demographic trends and a likely end to the current pandemic.
Similarly, the best growth shares to buy today could be digital retailers. They may experience slower sales growth in the coming months because of factors such as weak confidence among shoppers and rising unemployment. However, many consumers are shifting their spending online. And with a likely economic recovery ahead, digital retailers may benefit from strong demand for their products and services.
Buying growth companies at fair prices
Buying growth shares while they trade at cheap prices can be a challenge. After all, demand from other investors may have pushed their prices to excessive levels. That means there’s little scope for further capital appreciation. This can reduce potential returns. It can also lead to higher risks in a potential stock market crash.
However, by focusing on companies with long-term growth potential in unpopular industries, it may be possible to unearth the best growth shares to buy now. They could offer wide margins of safety, while their share prices may not fully reflect their long-term financial prospects.
Certainly, there’s never any guarantee that buying a growth stock for what seems to be a fair price will lead to capital returns that are positive. Any company’s outlook can be disrupted or negatively impacted by a long list of factors.
However, by focusing on industries that may have more long-term potential to grow than investors, or recent financial figures, suggest it may be possible to find the most promising opportunities to make a market-beating return in the coming years.