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

Red buy button on an Apple keyboard with a finger on it.
Cheap Shares

2 ASX shares highly recommended to buy: Experts

These businesses are strongly backed by analysts.

Read more »

A young woman lifts her red glasses with one hand as she takes a closer look at news.
Cheap Shares

Why a top fund manager thinks this ASX share is such an exciting stock to own

This stock continues to grow at a strong pace.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Cheap Shares

2 ASX shares tipped to grow 40% or more in the next 12 months

These ASX shares could deliver huge returns.

Read more »

A financial expert or broker looks worried as he checks out a graph showing market volatility.
Cheap Shares

This fund manager thinks these ASX shares are buys and have big potential!

This fund manager is always on the lookout for exciting ideas…

Read more »

Woman with her kitten on a laptop in her home office.
Cheap Shares

Are Treasury Wine shares a cheap turnaround buy at $5.26?

The brand quality is easy to see. What I am watching is whether management can turn it back into dependable…

Read more »

Red buy button on an Apple keyboard with a finger on it.
Cheap Shares

2 ASX shares highly recommended to buy: Experts

These ASX shares are well-liked by analysts.

Read more »

Vanadium Resources share price person riding rocket indicating share price increase
Cheap Shares

2 ASX shares tipped to grow 50% or more in the next 12 months

Analysts are expecting big things from these stocks…

Read more »

Piggybank with an army helmet and a drone next to it, symbolising a rising DroneShield share price.
Cheap Shares

By August 2027, DroneShield shares could turn $10,000 into…

DroneShield shares could deliver very significant, surprising returns.

Read more »