Yesterday’s roaring stock market could mean that many shares are suddenly looking under-valued. And we could be seeing a rare opportunity to buy cheap UK shares ahead of a significant rerating higher.
Consumer-facing risers
My own portfolio has burst into life with strong recent rises from most of the stocks I’m holding. I’m talking about retailers such as Shoe Zone, Dunelm, Burberry, Watches of Switzerland, Greggs and On the Beach. And other consumer-facing businesses such as soft-drinks maker Britvic.
Strength in the stock market has been quite broad-based over the most recent few days. But it’s always difficult to pin down the exact drivers of such movements. But my assumption is the massive intervention package announced recently for the UK’s energy market might have helped.
Maybe the cost-of-living crisis won’t be as big for many people as had been assumed. And falling commodity prices could be buoying optimism as well. After a delay, I reckon lower raw material prices will likely feed into the production chain. And that may drive down the selling prices of finished goods.
All this could mean consumers end up with more disposable cash in their pockets than many people thought possible a few weeks ago. So bombed-out shares in sectors such as retailing may have better immediate prospects for earnings than the market had assumed.
There could be better times ahead
I reckon we could be seeing the beginning of improving economic conditions ahead where consumers and businesses can thrive. And that’s good for stocks and shares. So, to me, it makes sense that fallen stocks are beginning to perk up. And that’s particularly true if the business behind the stock has a strong balance sheet and sound economics. Perhaps it won’t be long before City analysts start revising their earnings predictions higher for many companies.
Although my theories could prove to be wrong, I see plenty of stock opportunities right now. But it’s worth me bearing in mind that all shares carry risks as well as positive potential. And I could lose money even by investing in UK shares that look cheap to me now.
Nevertheless, I’m also keen on some stocks I’m not currently holding. For example, Pets at Home, Howden Joinery, JD Sports Fashion, Topps Tiles, Games Workshop and others. My plan would be to research each opportunity. Then buy when I have spare cash with the aim of holding for perhaps several years until sunnier economic times arrive.
In the context of a multi-year holding period, I don’t see the recent gains as a disadvantage. The opposite is true. Stocks, to me, often give advance warning that better times could be ahead. And they often do so by moving higher before the majority of people can believe it!
I could be wrong, but I see the potential early signs of the new bull market for UK shares. So I’m researching stocks and working hard on my watch list.