How I’d Identify the Best Shares to Buy in a Stock Market Recovery

The best shares to buy in a stock market recovery may offer a mix of financial strength, growth potential and a wide margin of safety.

Finding the best shares to buy in a stock market recovery can be a challenging task. After all, forecasts are very dependent on the economic outlook, which itself is likely to be heavily impacted by coronavirus.

However, by investing money in financially-sound businesses that have long-term growth potential while they trade at low prices, an investor could reduce their risks and increase their potential rewards.

Financial strength is key to long-term performance

The past performance of equity markets suggests that a long-term stock market recovery is likely to continue in the coming years. Even if there are downturns in the meantime, the stock market has always produced new record highs after each of its previous bear markets.

However, companies must be able to survive present economic difficulties in order to benefit from a period of growth in the long run. As such, identifying those businesses that have large cash positions, modest amounts of debt and access to liquidity should it be required could be a shrewd move. They may stand a better chance of surviving the short-term challenges that continue to face many sectors to benefit from improved operating conditions and stronger investor sentiment in the coming years.

Low valuations ahead of a stock market recovery

In a stock market recovery, the best performing shares are often those companies that previously traded at low prices. They have greater scope to deliver capital gains, since they trade at a larger discount to intrinsic value.

As such, buying undervalued stocks today could be a profitable long-term move. They can be found by, for example, looking at the value of their net assets versus share prices, or by considering their earnings track record in a variety of operating conditions. This may provide guidance as to whether they have the capacity to trade significantly higher in the long run. In cases where they seem to offer wide margins of safety, there may be opportunities to deliver market-beating performance.

Identifying potential growth opportunities

It is difficult to assess the prospects for any stock at the present time. Ultimately, nobody knows how the economy will perform due to the ongoing pandemic. Furthermore, the financial cost of the pandemic remains unclear, which could have an impact on growth opportunities within many industries.

However, buying companies that may benefit from underlying industry growth trends could be worthwhile ahead of a stock market recovery. For example, healthcare companies may capitalise on demographic changes such as an ageing population in future. Equally, online retailers may use digital growth opportunities to enhance their earning capacity.

Through purchasing such companies when they have solid finances and trade at low prices, it is possible to capitalise on a long-term market rally. This could improve an investor’s financial position in the coming years.

More on Investing

monthly calendar with clock
Dividend Stocks

Buy 2,000 Shares of This Top Dividend Stock for $121.67/Month in Passive Income

Want your TFSA to feel like it’s paying you a monthly “paycheque”? This TSX dividend stock might deliver.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, January 2

Despite a late pullback, the TSX wrapped up 2025 with a solid 28.2% gain, with today’s session shaped by higher…

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

Meet the Canadian Semiconductor Stock Up 150% This Year

Given its healthy growth outlook and reasonable valuation, 5N Plus would be a compelling buy at these levels.

Read more »

top TSX stocks to buy
Stocks for Beginners

Top Canadian Stocks to Buy With $5,000 in 2026

If you are looking to invest $5,000 in 2026, these top Canadian stocks stand out for their solid momentum, financial…

Read more »

Dam of hydroelectric power plant in Canadian Rockies
Energy Stocks

2 Stocks Worth Buying and Holding in a TFSA Right Now

Given their regulated business model, visible growth trajectory, and reliable income stream, these two Canadian stocks are ideal for your…

Read more »

money goes up and down in balance
Tech Stocks

1 Magnificent Canadian Stock Down 26% to Buy and Hold Forever

Lightspeed isn’t the pandemic high-flyer anymore and that reset may be exactly what gives patient investors a better-risk, better-price entry…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

2 Magnificent TSX Dividend Stocks Down 35% to Buy and Hold Forever

These two top TSX dividend stocks are both high-quality businesses and trading unbelievably cheap, making them two of the best…

Read more »

happy woman throws cash
Dividend Stocks

This 7.5% Dividend Stock Sends Cash to Investors Every Single Month

If you want TFSA-friendly income you can actually feel each month, this beaten-down REIT offers a high yield while it…

Read more »