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A stock market rally is nearing! How I’d find the best UK shares to buy today

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To many, the stock market rally still seems out of reach as the latest inflation data continues to push shares into the red. Yet despite this latest round of volatility, the FTSE 250 is still well above its lowest point in July.

The downturn seen earlier this week comes on the back of disappointing inflation results. But it’s worth pointing out that inflation is, in fact, falling. It now stands at 8.3% in the US, down from its high of 9.1% in June. Meanwhile, here in the UK, inflation sits at 9.9%, down from its high of 10.1% in July.

In other words, the stock market recovery may have already started. If true, then time to buy the best UK shares at amazing prices could be running out. So, the question is, how can I find these buying opportunities before it’s too late?

Finding the best investments for the coming stock market rally

Some of the best buying opportunities in today’s market arguably lie among the stocks that have been hit the hardest since the correction began in late 2021. However, not all these businesses will make it through the storm.

As a long-term investor, inflation fluctuations don’t concern me all that much. But for businesses with restricted cash flows and weak balance sheets, the subsequent rise in interest rates creates a substantial problem. With debt becoming more expensive, the profit margins of leveraged companies are already getting tighter.

While I’m confident the majority will find a way to endure, some will undoubtedly knock on the door of insolvency. Regardless, suppose I buy shares in a business struggling to stay afloat rather than focusing on long-term growth. In that case, I doubt my returns will be anything spectacular.

That’s why I’m prowling for UK shares with robust fundamentals, multiple competitive advantages, and viable value-building growth strategies to capitalise on the eventual stock market rally. Fortunately, I’m spoilt for choice, with most investors busy panic selling.

Buying cheap, high-quality UK shares still has risks

While the stock market rally may have already begun, there is no guarantee. Regardless, volatility will still be with us for quite some time, especially if the central banks fail to deliver a ‘soft landing’. After all, even if inflation tumbles, a recession will create its own set of problems, which are more challenging to fix.

So, how can I maximise my long-term potential returns while simultaneously protecting my portfolio from further downturns? This is where pound-cost averaging comes into play.

After I’ve identified the UK shares I believe are best positioned to capitalise on the stock market rally, it’s time to start adding these businesses to my portfolio. But instead of investing all my capital in one go, I will spread my buying activity over several months.

By doing this, if their stock prices continue to fall, I have the opportunity to snatch up additional shares at a better price, bringing my average cost down. Of course, it’s crucial to monitor why each company is tumbling. If a new revelation shows that the group is no longer fundamentally sound, buying more shares could be a recipe for disaster.

The post A stock market rally is nearing! How I’d find the best UK shares to buy today appeared first on The Motley Fool UK.

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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.