How I'd find cheap shares to buy right now

Focusing on unloved sectors with tough near-term outlooks could be a means of finding cheap shares to buy right now.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Despite the 2020 stock market rally, finding cheap shares to buy now is still an achievable goal for all investors.

A good starting point could be unloved sectors that face challenging near-term outlooks. Investor sentiment could improve significantly over the long run, as operating conditions for financially-sound businesses gradually improve.

Over time, this could lead to impressive capital returns that make a positive impact on an investor's financial situation.

Finding cheap shares to buy in unpopular sectors

Unloved sectors are an obvious starting point to find cheap shares to buy right now. Since they are unpopular among investors, they are likely to contain companies that trade on low valuations. This may provide significant scope for capital gains over the long run, as the world economy's performance improves and investor sentiment does likewise.

Of course, for any sector to be unpopular among investors it usually must face a difficult near-term outlook. This can mean that cheap stocks face volatile periods over the coming months, as a weak global economic performance likely continues.

However, history shows that buying unpopular stocks while they trade at low prices can provide generous capital returns over the long run. Valuations have often reverted to their long-term averages, thereby providing investors in today's cheap shares with high return prospects.

Buying financially-sound stocks

Clearly, not all cheap shares may be worth buying today. Some could be priced at low levels for good reason. For example, they may have weak financial positions or could lack a competitive advantage versus their peers.

As such, it is crucial for an investor to check their quality alongside their price. In other words, buying high-quality companies at cheap prices can be a far more profitable move. They could provide greater stability and less risk during a weak economic period.

Meanwhile, their recovery potential in a likely long-term stock market rally could be greater than their weaker peers. Their wide economic moats may mean they can deliver greater profit growth.

Assessing which cheap shares are also high-quality companies is subjective. However, as mentioned, they are likely to include companies with solid financial positions, wide economic moats and the right strategies through which to navigate what could be a rapidly-changing global economy in the coming years.

Taking a long-term view

Even once cheap shares to buy right now have been found, it can take many years for them to deliver on their potential. As such, it is important to take a long-term view of any purchases made in today's volatile stock market.

They could realistically decline in value in the short run depending on how political and economic risks unfold. But the past performance of the stock market suggests that a sustained bull market will take place, and today's undervalued stocks could be among the biggest beneficiaries.

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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Cheap Shares

Two women are glamourously dressed in a shopping mall carrying designer shopping bags and looking excitedly at something on a mobile phone.
Cheap Shares

Got $7,500? Here are 2 strong ASX retail stocks to buy now

These shares could offer a mix of recovery potential and long-term growth.

Read more »

Sports fans watching a match at a bar.
Cheap Shares

3 beaten-down ASX shares that I think could rebound strongly

Not every sell-off is a buying opportunity, but some businesses still have strong long-term potential despite recent weakness.

Read more »

Warren Buffett
Cheap Shares

I'm following Warren Buffett to snap up these cheap ASX stocks

These quality shares have been hammered. That's exactly why they're catching my eye.

Read more »

a woman with lots of shopping bags looks upwards towards the sky as if she is pondering something.
Cheap Shares

Is now the time to load up on CSL shares?

This could be a rare chance to buy a top biotech stock cheap.

Read more »

Couple looking at their phone surprised, symbolising a bargain buy.
Cheap Shares

Down 35% in 2026, are Xero shares the bargain buy of April?

Brokers think the tech stock could be primed for a strong rebound.

Read more »

Green tipped arrows in bullseye with green dollar sign
Cheap Shares

If I could buy just one ASX stock in April, it'd be Pro Medicus shares

This stock has been smashed, but the long-term story remains intact.

Read more »

A cool young man walking in a laneway holding a takeaway coffee in one hand and his phone in the other reacts with surprise as he reads the latest news on his mobile phone
Cheap Shares

Are '50% off' CSL shares a once-in-a-decade opportunity?

This biotech giant's shares have lost half of their value. Let's see if now is the time to snap them…

Read more »

A young man talks tech on his phone while looking at a laptop with a financial graph superimposed across the image.
Cheap Shares

3 ASX shares to buy before the next market rally

These shares appear well-placed to rebound with the market when sentiment shifts.

Read more »