Recently, I have been scouring the market for the best shares to buy now with a lump sum of £500. I am looking to invest in a basket of recovery stocks, companies that look cheap and may benefit from the economic bounce back over the next few years.
However, I am also aware this strategy comes with many risks. So I am not willing to risk a considerable amount of cash on businesses that may fail to live up to my expectations.
With that in mind, here is a list of my best shares to buy now with £500 for my recovery portfolio.
Best shares to buy for the recovery
In the industrial materials sector, I think Ferrexpo and Evraz currently appear cheap compared to their potential. Rising demand for iron ore and steel suggest that these two companies could see a significant increase in profitability over the next couple of years.
Now there is one overriding reason why the rest of the market is avoiding these companies. They are based in Ukraine and Russia, which means they are incredibly exposed to ongoing geopolitical tensions.
But with both stocks trading at a forward price-to-earnings (P/E) multiples of less than 5, I am willing to risk my money on these opportunities. As commodity prices rise, it looks as if both are on track for windfall profits this year.
Construction recovery
Another high-risk, high-reward opportunity is the construction group Kier. Since 2018, this company has been struggling to earn a consistent profit.
But analysts believe that will change over the next two years as the UK economy rebounds. Recent economic data shows that the construction sector is firing on all cylinders. As such, I am inclined to believe this view.
Still, the construction sector is usually the first to feel the pain in an economic downturn. So if the economy takes a turn for the worst, Kier could suffer.
Nevertheless, with the stock trading at a forward P/E of less than 5, I think the company’s valuation more than compensates for this risk.
Windfall profits
I also believe that B&Q owner Kingfisher is one of the best shares to buy now. Home improvement and DIY sales boomed during the pandemic, which really enabled this business to get its house in order. It has made a significant dent in net debt, and management has invested in new growth initiatives.
While the company will face challenges such as rising inflation pressures and the cost of living crisis as we advance, I think it is well-positioned to capitalise on the UK economic recovery over the next few years.
Despite this potential, the stock is currently trading at a forward P/E of just 9.4. The shares also offer a dividend yield of 3.6%, at the time of writing.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
