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Buy these British shares to beat the stock market slump

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Illo
Illo

The stock market has suffered steep falls in recent weeks, as investors have worried about high inflation, rising interest rates and the prospect of a recession in Britain.

But even as London’s stock market declines, City analysts think there are hidden gems that will bounce back fastest from the recent slump.

We break down where pro investors are placing their bets, and which sectors to avoid if you want to cut back risk.

Where to double your money

Given stock prices are falling, some DIY investors may be hunting for cheap shares that can bounce back when the market mood improves. Such an approach is risky, but could result in big gains.

City analysts expect Oxford Nanopore Technologies, advertising giant S4 Capital and media group Future to rebound the most on London’s stock market, according to data compiled by TipRanks, a research website.

Oxford Nanopore Technologies, a biotechnology business, has lost almost half of its value since it listed late last year. But the City thinks the stocks could more than double in price.

Odysseas Manesiotis, an analyst at the investment bank Berenberg, said: “Its technology is unique [with] the widest addressable market compared with peers, which could amount up to $300bn (£240bn) in the long term.”

However, stock pickers should note that high growth companies that have yet to turn a profit, such as Oxford Nanopore, have fallen out of favour with the market, as rising interest rates dent the value of their forecast profits.

Playing it safe

Some investors may prefer a more cautious approach while markets are falling. Investing in consumer favourites such as Dunelm Group and JD Sports Fashion could be a safer bet, as spending with well-known brands usually remains robust during periods of economic downturn.

While both stocks have fallen over the past year, City analysts expect that their prices could increase by 75pc and 63pc respectively.

Other traditionally defensive areas of the stock market have attracted strong "buy" ratings from professional investors. While possible gains are lower, investors can expect less volatility.

For example, City analysts expect shares in pharmaceutical giants AstraZeneca and GlaxoSmithKline to rise by 11pc and 4pc.

The investments to avoid

If you would prefer to reduce risk in your portfolio, you should avoid speculative businesses that have not yet turned a profit. This often applies to technology companies in high growth industries.

For example, the investment trust Chrysalis lost 10pc of its value on Thursday following reports that its largest holding, the buy-now-pay-later giant Klarna, had lost almost a third of its multi-billion dollar valuation.

Do not cash out

Investors should resist the temptation to sell their holdings when markets are falling, as you will crystallise your loss. It also makes it harder to decide the right time to buy back into the market, and will likely end up costing you more money.

Remember that in the long run, the stock market will go through natural dips and rises. Only time can help smooth out your returns.

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