Stock Market Recovery: I’d Buy Value Shares Now and Never Sell Them

Investing money in value shares could be a sound means of capitalising on a likely long-term stock market recovery.

Where to Invest?

Image source: Getty Images

Buying value shares and holding them for the long run has been a relatively successfully strategy over many decades.

It allows an investor to capitalise on low prices that provide capital growth potential, while benefitting from owning high-quality businesses that may have relatively low risks.

Since many strong businesses currently trade at low prices, it could be a good time to purchase value stocks. They could benefit from a long-term stock market recovery.

The appeal of value shares

Clearly, deciding which companies should be classed as value shares is open to debate. However, they are likely to include businesses that have dominant market positions in their respective industries that may allow them to deliver stronger profit growth than their peers. They are also likely to have solid balance sheets that can provide the required level of investment to expand into new growth areas to further enhance their financial prospects.

When such companies trade at prices that do not fully reflect their long-term financial capabilities, they could offer good value for money. Often, low share prices for high-quality businesses do not last for long, since industry or economic disruption has often given way to stronger operating conditions. Therefore, at a time when many companies could be classed as value shares following the 2020 stock market crash, there may be opportunities to build a portfolio that includes them.

A long-term stock market recovery

While many companies have posted strong share price growth in the stock market rally over recent months, a number of stocks continue to trade at low price levels. This could be because they continue to face major disruption from coronavirus or economic uncertainty. Buying them now could prove to be a sound move because of the stock market recovery that is likely to take place in the coming years.

History suggests that a strategy that aims to purchase high-quality companies when they trade at low prices has been very successful. Investors such as Warren Buffett have used such a plan to take advantage of the market cycle, where downturns have always been followed by rallies that lead the stock market to new record highs. As such, today’s value shares could gain momentum as investor sentiment improves and a global economic recovery takes hold.

Adopting a patient approach

Of course, it could take many years for some of today’s most attractive shares to deliver on their potential. The future is always known unknown, but at the present time it is arguably more unpredictable than is usually the case due to uncertainty caused by coronavirus.

As such, adopting a long-term approach when buying value shares could be a prudent move. It may enable high-quality companies to deliver on their potential. Over time, a patient approach could be rewarded with market-beating returns that significantly improve an investor’s financial prospects.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

exchange-traded funds
Investing

Cautious Investor? These ETFs Are a Safer Way to Invest in the AI Boom

ETFs can offer AI investors greater diversification.

Read more »

Aerial view of a wind farm
Energy Stocks

Is There Any Hope for Brookfield Renewable Stock?

Brookfield Renewable stock (TSX:BEP.UN) may be going through a rough patch, but recent moves suggest more is yet to come.

Read more »

Growing plant shoots on coins
Dividend Stocks

Better Buy in August: Passive-Income or Growth Stocks?

With a steady mix of passive-income and growth stocks, investors can create a prime portfolio even during market volatility.

Read more »

Woman has an idea
Stocks for Beginners

Why Canadian Investors Should Consider Investing in U.S. Stocks

In my opinion, U.S. stocks should be a large component of a Canadian investment portfolio.

Read more »

Money growing in soil , Business success concept.
Tech Stocks

The Smartest TSX Growth Stocks to Buy in July 2024

If you are looking for some smart growth stocks, here are four to look at right now.

Read more »

a person prepares to fight by taping their knuckles
Dividend Stocks

3 Defensive TSX Stocks for Lower-Risk Investors

These three TSX stocks are all high-quality companies with defensive businesses, making them ideal for low-risk investors.

Read more »

Paper Canadian currency of various denominations
Investing

Where to Invest $10,000

These companies have strong fundamentals with the potential to deliver solid capital gains.

Read more »

healthcare pharma
Investing

Up 23% This Year, Is WELL Health Technologies a Good Stock to Buy Right Now?

Given its long-term growth prospects and attractive valuation, WELL Health's uptrend could continue.

Read more »