3 steps I’d take to unearth the top shares to buy in February 2021

The top shares to buy in February could be those companies with solid financial positions, low valuations and recovery potential.
The post 3 steps I’d take to unearth the top shares to buy in February 2021 appeared first on The Motley Fool Australia. –

$10, $20 and $50 noted planted in the dirt signifying asx growth shares

Despite the stock market rally following the 2020 market crash, it is still possible to find top shares to buy right now. Over time, they could deliver higher returns than the stock market, which could boost an investor’s portfolio performance.

Through analysing company valuations on a relative basis, considering the capacity for a recovery within struggling sectors, and assessing the financial strength of businesses, it is possible to unearth the most appealing shares to buy right now.

Low valuations among top shares to buy today

Following the stock market recovery, a number of companies now trade on high valuations. While they could move higher if investor sentiment continues to improve, the top shares to buy today may be those companies with more modest valuations. After all, lower valuations may mean there is more scope for capital growth as the economic recovery takes hold.

As such, it may be prudent to search for companies that have low valuations. They may be lower than their sector peers, or below their historic averages. In either of these situations, there may be scope for them to enjoy upward reratings over the coming months and years, as improving investor sentiment and reduced disruption from lockdown measures allow businesses to return to improved operating conditions.

Focusing on recovery opportunities

Some companies have been hit harder than others in the present economic crises. In many cases, this is through no fault of their own. For example, they may have experienced weak operating conditions because of a challenging economic outlook.

History suggests that buying such companies could be a shrewd move. The performance of the economy, and most sectors, is very likely to improve significantly over the coming years. This may mean that the financial performance of businesses that experienced falling sales and profitability in 2020 improves. This process may or may not take place in 2021, but is likely to come into force in the long run.

Therefore, searching for top shares to buy now in sectors with recovery potential could be a shrewd move. It may enable an investor to buy turnaround opportunities that deliver market-beating returns.

Financial statement analysis

Even cheap shares with recovery potential are of little use if they cannot survive short-term economic challenges. After all, to benefit from an economic recovery through an upward rerating, a company must first overcome short-term difficulties that may remain present for much of the current year.

Therefore, analysing a stock’s financial statements could be a sound idea. It will enable an investor to judge whether the company in question has the financial means to survive the short run to benefit from an improving long-term outlook. Top shares to buy today are likely to have low debt, access to liquidity and the means to cut costs now to become leaner entities prior to an economic recovery.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of June 30th

More reading

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 3 steps I’d take to unearth the top shares to buy in February 2021 appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!