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Stock market rally: I think these FTSE 100 stocks are the best shares to buy now

Peter Stephens
·3-min read
Lady researching stocks
Lady researching stocks

The recent stock market rally has thrust many FTSE 100 shares to higher price levels. Despite this, there are a number of companies that continue to trade at attractive prices. Over the long run, they could benefit from a stock market recovery prompted by an improving global economic outlook.

Clearly, deciding which are the best shares to buy now is likely to cause debate among investors. However, the following three shares could stand to benefit to a relatively large extent from an improving economic outlook. It may catalyse their profitability and market valuations in the coming years.

UK-focused businesses could benefit from a stock market rally

Companies operating in the UK could benefit from a likely long-term stock market rally. For example, Lloyds generates almost all of its revenue from within the UK. As such, an improving economic outlook may mean demand for its products and services increases over the long term.

Furthermore, the bank is likely to resume dividend payouts over the coming years. This may help to increase the appeal of its shares to a broader range of investors after dividends were cancelled across the UK banking industry in response to the coronavirus pandemic.

With it having a competitive advantage via its investment in digital services and sound financial position, it may also be able to outperform other FTSE 100 banks in the long run.

A FTSE 100 dividend opportunity

Vodafone may also deliver share price growth in a stock market rally. Its dividend yield of around 6% suggests it offers a wide margin of safety. This indicates it has the capacity to deliver share price growth in a rising market.

Its passive income appeal may increase due to what could prove to be a long period of low interest rates. The company’s focus on improving customer service levels through digital channels may also mean it can forge a stronger competitive position that translates into rising profitability.

Investors may respond positively through allowing the stock to trade at a higher valuation relative to many of its FTSE 100 index peers.

Global economic recovery potential

Companies reliant on the outlook for the global economy, such as BHP, could be among the best shares to buy ahead of a long-term stock market rally. Its financial performance has been relatively resilient. Meanwhile, its low cost base may mean its profitability is relatively high. Certainly as demand for commodities increases in a global economic recovery.

BHP has a solid balance sheet that could allow it to invest to a greater extent than sector peers. Its diverse range of assets also helps to protect it against a weak performance from market segments within the wider resources industry. This reduces overall risk, and may increase potential rewards for investors.

The post Stock market rally: I think these FTSE 100 stocks are the best shares to buy now appeared first on The Motley Fool UK.

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Peter Stephens owns shares of BHP Group, Lloyds Banking Group, and Vodafone. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021