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Finding the best UK shares to own can be an interesting endeavour. Mostly because they often show up in the most unexpected of places.
Gaming-changing artificial intelligence (AI) companies are currently dominating the headlines as the hype surrounding machine learning and generative models reaches its apex. But while most investors are busy chasing the same returns, there are a lot of top-notch companies getting completely ignored. And in my experience, it’s the latter that almost always delivers the greatest returns.
The challenge is finding these companies. So where is the first place investors should start their search?
Loving the unloved
When studying the world’s greatest investors like Warren Buffett, some of their best investments came from businesses that were significantly undervalued. Snapping up terrific companies at dirt cheap prices is a proven method of building wealth. And often these opportunities reside within industries that are out of favour with investors.
With less interest surrounding a particular sector, the market can be slow to correct mispricing. And that creates a window of opportunity for prudent investors to start snapping up bargains. Today, even with inflation coming down, there are plenty of industries out of favour. One obvious example is electronics.
Supply chain disruptions following the pandemic led to a lot of manufacturing businesses to load up on inventory for electronic components. However, with demand for consumer electronics low due to to economic conditions, most of these companies have been burning through their existing stock rather than placing new orders.
That’s a headwind RS Group‘s (LSE:RS1) having to tackle first-hand. And since peaking in late 2021, the stock’s almost halved. But could a rebound be just around the corner?
Delivering long term
We’ve already seen the explosive potential recoveries can deliver to investors’ portfolios. The FTSE 250‘s already up over 25% since October 2023, including dividends. And even among FTSE 100 stocks, there have been some terrific comeback stories of late.
That’s the power of snapping up bargains in the stock market. And it’s possible that RS Group may be able to deliver triple-digit returns as demand returns – something that may already have been happening.
The Purchasing Managers Index (PMI) serves as a handy proxy for determining whether manufacturing in certain regions is expanding or contracting. And since the start of 2024, levels have been on the rise worldwide, with the US in particular already returning to growth.
Providing these trends continue, we could be at or near the bottom of the multi-year cycle within the electronics space. And as demand starts to ramp back up, RS Group’s share price could swiftly follow, rewarding shareholders for buying at the bottom.
Of course, indexes like the PMI are far from perfect. And as a lagging indicator it has its limitations when it comes to making predictions. In other words, the recovery of the electronics sector may be slower than expected, demanding considerably more patience from investors.
Yet, even with that risk in mind, RS Group seems to have ample financial flexibility to weather the storm and deliver in the long run, in my opinion. That’s why if I had £1,000 to invest today, RS Group would be near the top of my list of potentially lucrative investment opportunities for the long run.
