2 stocks to buy for a stock market rally

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UK stocks had a torrid week with the FTSE100 index down nearly 6%. But when there is panic, there can be opportunity. That’s why I’m looking for the best stocks to buy right now.

It all started with the collapse of Silicon Valley Bank, the sixteenth largest lender in the United States. And it continued with concerns about Swiss creditthe financial situation of.

At the end of the week, the Swiss National Bank provided £45 billion in funding to Credit Suisse. But the stock market remains on edge.

fear and greed

Market psychology plays an important role in stock market investing. Mr Market sometimes behaves irrationally and fear drives stock prices down.

Warren Buffett coined the now popular phrase, “Be fearful when others are greedy and greedy when others are fearful”.

When investors are scared, it can sometimes lead to undervalued stocks. Kind of like a shopping sale.

Keep in mind that stock market panic is not always unfounded. For example, some concerns about banking difficulties are justified.

A sharp rise in interest rates in the United States and Europe created challenges for many banks. But it remains to be seen whether they can be sufficiently contained.

Find stocks to buy

Nevertheless, history shows that eventually all challenges are overcome one way or another. And stock market declines lead to recoveries.

To get a head start, I would like to find the best stocks to buy now that are likely to rally quickly.

To do this, I would focus on high-quality stocks. By this I mean that they must demonstrate a sustainable competitive advantage. It’s what Warren Buffett would call a moat, and it could take the form of strong technology, a popular brand, or patents.

I would also be looking for a double-digit profit margin, low leverage, and plenty of cash.

The best choice

Right now, if I had cash, I would buy stocks in Games Workshop (LSE: VAG). This specialist in fantastic figurines benefits from a phenomenal return on capital of more than 50%. This is a great sign of a quality company, in my opinion.

It’s a well-managed, global company focused on long-term success. Its competitive edge comes from defensible intellectual property. This creates a strong barrier to entry for potential competitors.

Keep in mind that in the event of a cost-of-living crisis, spending on this hobby could slow down. That said, one of its most exciting growth areas right now is licensing.

In recent months, Games Workshop has entered into an agreement with Amazon to help turn its characters and stories into TV shows, movies, and merchandise.

This is an exciting partnership for the company. And despite being an established company for many decades, I feel like the story has only just begun.

Undervalued Stock

If I had extra money, another stock I would buy before a market rally is Hargreaves Lansdown.

Investment platform Hargreaves Lansdown is set to benefit from the government’s recent scrapping of the lifetime allowance. I expect inflows to SIPP accounts to increase. It faces competitive pressures, but it’s a high-quality, low-cost stock.

It has a return on capital of a whopping 50%, a price to earnings ratio of just 13 and a dividend yield of 5%. It all sounds good to me.

The post 2 stocks to buy for a stock market rally appeared first on The Motley Fool UK.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Harshil Patel holds positions at Amazon.com. The Motley Fool UK recommended Amazon.com, Games Workshop Group Plc and Hargreaves Lansdown Plc. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.

Motley Fool United Kingdom 2023

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