The stock market crash means there are a number of bargain shares available for long-term investors to buy. Of course, an uncertain economic outlook may mean that finding them is more challenging now than it was previously.
However, by focusing on sectors with growth potential that are unpopular among investors, and identifying businesses with sound strategies, you could build a diverse portfolio of stocks that is capable of delivering high returns in the long run.
Bargain shares in unpopular sectors
Buying the best shares in unloved industries could be a sound means of obtaining favourable risk/reward opportunities. Clearly, some sectors may be unpopular among investors for good reasons, such as weak growth outlooks. However, in some cases, investor apathy towards the wider stock market means that industries with growth potential are undervalued.
Clearly, it is difficult at the present time to identify which sectors can recover from the current challenges facing the world economy. However, many trends of recent years look set to continue in the coming years. For example, an increasing use of technology in our everyday lives, a rising demand for healthcare-related products and services, and a switch towards greener forms of energy are likely to persist.
This strategy may not necessarily lead to portfolio growth in the near term. However, the track record of the stock market shows that buying bargain shares in sectors with growth potential while they are unpopular among investors could increase your chances of generating high returns in the long run.
The best bargain shares are not necessarily those with the lowest valuations. Certainly, a wide margin of safety helps to make any stock a ‘bargain’, but the quality of its operations also has a large bearing on its prospects from an investment perspective.
Therefore, buying the strongest businesses in a specific sector could be a sound move. To achieve this goal, it may be necessary to consider factors such as financial strength, growth strategy and the size of a company’s economic moat. They may have changed significantly after the coronavirus pandemic, which could create new opportunities for businesses that previously did not have especially attractive business models.
Assessing the quality of a range of companies may require time and effort on the part of the investor. However, it could be worth it if it means that you are able to identify the most attractive companies that ultimately produce the highest returns in the long run.
With a wealth of information available via annual reports, trading updates and forecasts, it is possible for an investor to accurately gauge the quality of a business versus its sector peers. Doing so could make it easier for you to find the best bargain shares available after the market crash to boost your long-term financial prospects.
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Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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