The best UK shares may not necessarily be the cheapest stocks available following the stock market crash. However, they may prove to be the most profitable investments over the long run for ISA investors.
Buying companies with wide economic moats, sound finances and solid growth strategies may make a more positive impact on your financial prospects compared to purchasing cheap stocks. It may even increase your chances of making a million.
The best UK shares
Whether a company can be described as one of the best UK shares is, of course, subjective. One investor’s views about a business may be entirely different to those of their peers. However, many of the strongest companies that have performed well over the long run have often had strong balance sheets, wide economic moats and sound growth strategies.
For example, businesses that have low debt levels may be in a better position to survive a period of weak economic growth. They may be less risky at a time when some sectors face challenging outlooks. This could allow them to produce higher returns over the long run.
Similarly, the best UK shares may have wide economic moats. This is essentially a competitive advantage over their industry peers. It may be brought about by factors such as a lower cost base or a unique product that has strong brand loyalty. Companies with wide economic moats may be able to deliver higher profitability that allows them to command a higher valuation.
Meanwhile, the best stocks available may be those companies that have solid growth strategies. For example, they may be able to adapt to changing consumer trends that appear to be more fluid now than they have been for many years.
Cheap stocks after the market crash
Of course, the best UK shares may not be among the cheapest stocks available. Following the market crash, some companies are trading at exceptionally low prices that have not been seen for over a decade. While in some cases they may offer recovery potential, in others their low prices may be warranted by a weak balance sheet or a lack of a competitive advantage.
Therefore, investors may be better off purchasing high-quality companies – even if the trade at higher prices. Certainly, this may mean there is less scope for a recovery. However, the chances of obtaining a market-beating return in the coming years may be higher than among the cheapest shares in the FTSE 100 and FTSE 250.
With the stock market having recorded an annualised return of around 8% over recent decades, investing £750 per month in an ISA could produce a portfolio valued at £1m within 30 years. However, by purchasing the best UK shares around – even at premium prices – you may be able to obtain a higher return that improves your chances of making a million.
