Finding the best UK shares to buy may be a more difficult task after the 2020 stock market crash. The economic outlook is weaker than it was at the start of the year. As such, many companies face tough operating conditions that could negatively impact on their financial prospects.
However, by focusing on companies with solid finances, wide economic moats and margins of safety, an investor could generate high returns in a likely market recovery in the long run.
Solid finances after the stock market crash
Buying UK shares with solid financial positions could offer less risk after the stock market crash. For example, a business with low debt levels and significant interest cover may be more able to overcome a period of weaker sales performance. With factors such as higher unemployment and weaker consumer confidence set to remain in place over the coming months, buying financially sound businesses could be a logical approach for investors to take.
Furthermore, companies with sound balance sheets may be able to expand their market presence over the long run. They may be able to outlast their weaker peers in the coming months, and in doing so gain market share. They may also be able to capitalise on the stock market’s lower price level to make acquisitions to further improve their long-term profit potential.
Purchasing UK shares with wide economic moats
Companies with wide economic moats may also fare better than their peers following the stock market crash. An economic moat is essentially a competitive advantage over rival businesses. This may, for example, take the form of a unique product, a lower cost base or strong brand loyalty that produces higher sales in a variety of market conditions.
Clearly, identifying UK shares that have wide economic moats is very subjective. However, by seeking out businesses that have a strong track record of profitability and that have offered higher returns than their peers over the long run, an investor may be able to position their portfolio so that it enjoys greater growth during a likely long-term economic recovery.
Investing money in value stocks
The best UK shares to buy after the stock market crash may not necessarily be the cheapest companies in a specific sector. For example, companies with wide economic moats and solid financial positions may have a higher valuation than their less attractive peers. In such cases, it may be worth paying a premium price for a higher-quality business that offers less risk in the present economic difficulties and greater growth potential in the long run.
Through purchasing a diverse range of companies with solid balance sheets and wide economic moats when they offer margins of safety, an investor can successfully capitalise on the 2020 market decline.