Over the past few weeks, the stock market recovery has started to gather pace. It’s easy to understand why investor sentiment has improved so dramatically. Clinical trial data from two coronavirus vaccines has shown science can beat the virus. This data has also shown investors there’s light at the end of the tunnel.
What’s more, initial indications suggest the economic hit from the pandemic isn’t going to be as bad as initially expected.
Unemployment has risen, and thousands of businesses have collapsed, but concerns about bank solvency haven’t materialised. Online retailers have also seen a sudden increase in their sales.
For example, in September, retail sales volumes increased by 1.5% compared with August, and 5.5% compared with February’s pre-pandemic level.
So, while some sections of the economy are suffering, others are prospering. This should help the economic and stock market recovery in the years ahead.
Stock market recovery investing
Investing in this environment is challenging. However, I think I know where I’d invest if I had to deploy a lump sum of £1,000 today.
The best stocks to buy in the current market, in my view, are those businesses that have prospered over the past 12 months.
While the stock market recovery has gained traction over the past few weeks, the outlook for the global economy remains highly uncertain. As noted above, some sectors have recovered, but others have struggled. And, as we don’t know what the future holds, I’d stick with the businesses that have shown investors they can weather the pandemic successfully.
Cocid-19 has dramatically changed the business environment. Some sections of the economy may never go back to how they were before. This suggests to me that companies like Ocado may continue to prosper in the years ahead. The online retail giant is a global leader in robotics solutions for supermarkets. As the world becomes more and more dependent on technology, I think the demand for the firm’s services will only increase.
The same goes for antivirus software business Avast and IT services group Computacenter. These companies have prospered in the pandemic and I think they’ll continue to do so in the years ahead. Organisations that have been forced to move systems online over the past six months are never going back to the way they were working before.
These are the sorts of companies I’m looking at buying from my portfolio right now. I think one may benefit from buying these businesses in the stock market recovery as they offer the best of both worlds, the potential for short-term profits, as well as a more optimistic long-term outlook.
As we don’t know what the future holds for the global economy, I think buying stocks that will benefit no matter what is the best strategy. That’s the one I’m pursuing for my portfolio.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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 2020