Despite the stock market rally following the 2020 market crash, it’s still possible to find top shares to buy right now. Over time, they could deliver higher returns than the stock market. And that could boost an investor’s portfolio performance.
Through analysing company valuations on a relative basis, considering the capacity for a recovery within struggling sectors, and assessing the financial strength of businesses, it’s possible to unearth the most appealing shares to buy right now.
Low valuations among top shares to buy today
Following the stock market recovery, a number of companies now trade on high valuations. While they could move higher if investor sentiment continues to improve, the top shares to buy today may be those companies with more modest valuations. After all, lower valuations may mean there’s more scope for capital growth as the economic recovery takes hold.
As such, it may be prudent to search for companies that have low valuations. They may be lower than their sector peers, or below their historic averages. In either of these situations, there may be scope for them to enjoy upward re-ratings over the coming months and years. That could be boosted by improving investor sentiment and reduced disruption from lockdown measures, allowing businesses to return to improved operating conditions.
Focusing on recovery opportunities
Some companies have been hit harder than others in the present economic crises. In many cases, this is through no fault of their own. For example, they may have experienced weak operating conditions because of a challenging economic outlook.
History suggests that buying such companies could be a shrewd move. The performance of the economy, and most sectors, is very likely to improve significantly over the coming years. This may mean the financial performance of businesses that experienced falling sales and profitability in 2020 improves. This process may or may not take place in 2021. But it’s likely to come into force in the long run.
Therefore, searching for top shares to buy now in sectors with recovery potential could be a shrewd move. It may enable an investor to buy turnaround opportunities that deliver market-beating returns.
Financial statement analysis
Even cheap shares with recovery potential are of little use if they can’t survive short-term economic challenges. After all, to benefit from an economic recovery through an upward rerating, a company must first overcome short-term difficulties that may remain present for much of the current year.
Therefore, analysing a stock’s financial statements could be a sound idea. It will enable an investor to judge whether the company in question has the financial means to survive the short run to benefit from an improving long-term outlook.
Top shares to buy today are likely to have low debt, access to liquidity and the means to cut costs now to become leaner entities prior to an economic recovery.