Over the long-run, stock markets around the world will recover from the periodic set-backs they face. Whilst this isn’t quite a law of nature, it is highly probable based on previous evidence! As such, when the markets crash, savvy investors should be on the hunt for undervalued companies. What has fallen too far, too fast, and will almost definitely soon rebound to its previous level?
In this article we take you through 4 UK shares that you should consider buying in the next stock market crash.
- Spirax-Sarco Engineering
- Croda International
I never get tired of singing the praises of Ocado! Not only has the stock returns over 600% in the last 5 years, Ocado today look like a well-managed, mature company on the verge of fresh expansion. As a cyclical stock, Ocado’s share price is very sensitive to changes in consumer confidence, and this, in turn, is driven largely by expectations of the timing of boom-and-bust. As such, Ocado’s share price will sink fast when the next market crash happens.
However, the innovative automated warehouse tech developed by Ocado and now licensed all around the world have generated a strong consensus amongst analysts that Ocado’s future is secure. There are therefore very good reasons to buy Ocado at (almost!) any price, but if you get the chance to buy them cheap following a market crash then this is definitely worth considering.
Analysts have given up trying to work out the definitive answer of what is happening with airline stocks… One minute they are rebounding following some positive headline about reopening or vaccine success rates; the next they are sinking again after a Covid resurgence somewhere or other. As such, airline stocks have become more of a ‘gut-feel’ sector, rather than something you can understand simply by crunching the numbers.
However, the human desire for holidays somewhere other than where you live, would appear to be a fairly ‘hard-wired’ trend. Even if Covid restrictions remain in place in some sense for years ahead, it seems likely we will all want foreign holidays again at some point. As such, EasyJet’s business model does look future-ready. The low-cost airline sector which they helped to create has a very strong chance of bouncing back in the next few quarters, and it’s hard to see how this sector could be disrupted quickly. Accordingly, EasyJet look very cheap already, with the share price down nearly 24% over the past 5 years. If a market crash depressed this even further, then the stock would look like a great bargain.
Few readers will have heard of Spirax-Sarco Engineering – do not let that put you off! This is a fantastic UK engineering firm specializing in making steam management systems and peristaltic pumps and associated fluid path technologies. This might not mean much to the average stock market follower, but these technologies have a crucial role to play in a whole host of sectors, including food, pharmaceuticals, chemicals and environmental industries. As such, Spirax-Sarco thrive and succeed when orders are flooding in from elsewhere. Today they operate in over 60 countries across the world and are the leading provider of several systems.
When the next market crash happens, unfashionable engineering stocks often take a battering due to their lack of brand visibility. However, these are exactly the kind of companies that possess real long-term value based on the capital assets they hold and the large pools of skilled labour they have on their books. As such, Spirax-Sarco looks like the kind of stock you should be happy to buy at a discount. Even better is the fact that you can hold a position in these kind of firms for your whole life time and expect to see a good return! Spirax-Sarco traces it’s origins all the way back to 1888, and having come through two World War’s and much else they can be expected to survive the next market dip!
Finally, a similar pick to the above. Croda are a specialist chemicals manufacturer who you won’t ever have heard of but you will definitely have used a product that was made using Croda’s chemicals as an input. As you can see by now, one view is that in a market crash you are usually best of buying firms will a real, proven business model who are intricately involved in the process of satisfying real human wants and needs. Riskier but more growth-oriented stocks are there to buy in the good times – when things go wrong, go back to the fundamentals!
Croda have seen their share price more than double since the pandemic started. This is excellent evidence that when things are tough, you should look for firms who make things that will always be needed, such as specialist and irreplaceable chemicals. Finally, Croda recently acquired a Spanish chemicals company, Iberchem, and they have further plans to expand internationally.
When They’re Crying, You Should Be Buying!
It’s a well-known idea – if everyone is optimistic, you should be selling to them. When everyone is pessimistic, you should be buying from them. This is, of course, easier said than done! The 4 stocks above all have a reasonable chance of surviving a crash and coming back stronger. As such, they can all be seen as tempting assets to acquire, especially if you can do so cheaply just after a crash.
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