The stock market, in general, has been rallying since the spring of 2020. Of course, not all shares have done equally well. Some sectors have been more badly damaged by the pandemic than others.
But the arrival of vaccines to fight Covid-19 suggests the potential for a return to more-normal general economic conditions down the road. And, overall, the stock market has been rallying in anticipation of recovery for many businesses.
Businesses look set to thrive
An investment made in index trackers last spring will have done well, for example. But my assumption is that many businesses will thrive as the pandemic fades. And I reckon the gains we’ve seen in the stock market recently could be the beginning of a much larger move higher over many years to come.
So, it could be a good time right now for me to consider opening a Stocks and Shares ISA and filling it with some good-quality share investments to hold for the long term. I like the tax advantages offered by ISAs. I’m expecting my shares to appreciate in value in the coming years, so it’s good that ISAs are exempt from capital gains tax. There’s also no dividend tax. And I won’t need to pay income tax when I eventually take money out of my Stocks and Shares ISA.
One approach to selecting shares involves looking for companies with businesses that have suffered a setback because of the pandemic. Such ‘cheap’ shares could do well as recovery gains traction in their underlying businesses. For that kind of strategy, I’m keen on shares such as FTSE 100 housebuilder Persimmon and banking company Natwest.
But I’d also consider investing in smaller cyclical companies that have more room to expand their operations. One example is the bathroom and kitchen products manufacturer Norcros, which owns the Triton shower brand among others.
Compounding long-term gains
Another approach to share selection involves targeting defensive businesses with steady cash-generating qualities. I’m keen on a number of companies like that on the London stock market and believe them to be excellent vehicles for compounding gains over a long period of time. But I’d aim to buy the shares when they show weakness in order to lock in a better-value purchase.
Right now, I’m keen on the pharmaceutical giant AstraZeneca. The company appears to have plenty of potential left in its research and development pipeline. And new medicines could emerge in the years ahead with the potential to drive further growth in sales and profits.
Meanwhile, we are seeing the first sparks of a turnaround in the underlying business of fast-moving consumer goods company PZ Cussons. A new chief executive has his sights set on reviving the company’s fortunes and the stock has risen in anticipation of that. But it’s recently fallen back a bit and I see the recent lull in the price as a decent buying opportunity.