Why I’d Grab Today’s Cheap Shares Before It’s Too Late!

Today’s cheap shares could experience a long-term recovery. I’d buy them now before their valuations potentially rise.

Woman has an idea

Image source: Getty Images

A strategy that aims to buy cheap shares and hold them for the long run has historically been relatively successful. While it doesn’t guarantee profits, it can serve as a means of potentially using the stock market’s cycle to an investor’s advantage.

With many stocks currently trading at low prices due to ongoing economic uncertainty, there may be an opportunity to buy them prior to their recovery. Although an economic recovery cannot be assumed, history suggests that there is a good chance it will take place over the coming years, potentially lifting the valuations of today’s underpriced stocks.

Cheap shares following the market crash

While many cheap shares have bounced back following the 2020 stock market crash, others have failed to fully recover to their pre-crash levels. In some cases, this may be warranted because of their weak financial positions and challenging future outlooks. However, in other cases, they may have the strategies, financial means and market positions to mount a successful recovery over the long run.

Clearly, identifying such companies can be challenging. However, doing so could be a prudent move, since it may enable an investor to reduce their overall risks. Cheap shares in companies with poor finances and weak market positions may be less likely to deliver successful turnarounds, or even survive, over the long run. Therefore, focusing on high-quality companies that are undervalued may be a more prudent approach.

The prospect of economic growth

As mentioned, an economic recovery that lifts the valuations of today’s cheap shares cannot be taken for granted. The future is always very uncertain, and the pandemic is an extremely rare event that may have as yet unknown effects on the world’s gross domestic products (GDP) prospects.

However, previous economic declines have always been followed by growth. No recession has yet lasted in perpetuity. Therefore, taking a long-term view of cheap stocks could be a means of capitalising on a likely economic recovery. Just as the 2020 market crash was almost impossible to predict, trying to forecast when any economic recovery will take hold is a very difficult task. Buying shares while they still trade at cheap prices could therefore prove to be a sound move.

Minimising risks

When investing in cheap shares, or any type of stock, it is impossible to reduce risks to zero. There is always the potential for losses over any time period from any holding. After all, the future is a known unknown that cannot be forecasted accurately on a consistent basis.

However, it may be possible to reduce risk through actions such as focusing on stronger businesses and building a portfolio made up of a broad range of businesses, industries and geographies. Together, they may offer a lower level of risk versus a concentrated portfolio, and may also deliver higher returns in a potential long-term economic recovery.

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

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

1 Growth Stock With Legit Potential to Outperform the Market

Identifying the stocks that have outperformed the market (in the past) is relatively easy, but selecting the ones that will…

Read more »

healthcare pharma
Tech Stocks

Well Health Stock Is Up 7% After Earnings: What Investors Need to Know

Well Health is benefiting from strong demand as it digitizes healthcare and strives to improve patient outcomes.

Read more »

money cash dividends
Dividend Stocks

Passive Income: The Investment Needed to Yield $1,000 Per Annum

Do you want to generate a juicy passive-income stream? Here's a trio of stocks that can generate a yield of…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Here’s the Average TFSA Balance in 2024

The average TFSA balance has steadily risen over the last six years and surpassed $41,510 in 2023. Will the TFSA…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

Invest $10,000 in This Dividend Stock for $1,500.50 in Passive Income

If you have $10,000 to invest, then you likely want a core asset you can set and forget. Which is…

Read more »

Supermarket aisle with empty green shopping cart
Stocks for Beginners

Is Dollarama Stock a Buy?

Dollarama stock (TSX:DOL) has seen shares surge on the back of strong performance and a dividend boost, but it also…

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

TFSA Set and Forget: 2 Dividend-Growth Superstars for the Long Run

I'd look to buy and forget CN Rail (TSX:CNR) and another Canadian dividend-growth sensation for decades at a time.

Read more »

Payday ringed on a calendar
Dividend Stocks

1 Passive-Income Stream and 1 Dividend Stock for $781.48 in Monthly Cash

Looking for passive income? Don't take out a loan with that high interest involved. Instead, consider this method for years…

Read more »