Having blown cold on the stock for so long, should I regard this fall as a golden opportunity to finally climb on board?

Profits double!

On a day when most investors are hiding behind their sofas, the numbers from the British Gas owner make for pleasant reading. One, in particular, stood out for me: adjusted operating profit rocketed 112% to £948m in 2021. No wonder the Centrica share price has been motoring for the last nine months or so. 

No doubt some investors have been tempted to get involved following actions taken by management to make Centrica a leaner beast after losing so many customers to rivals. Direct Energy was sold last year and the disposal of Spirit Norway has also been agreed. This has helped boost Centrica’s balance sheet. In fact, the company finished 2021 with net cash for the first time in many years (£0.7bn). That’s really made me sit up and take notice. 

“Broadly positive” outlook

Of course, there’s only so much weight I should give today’s results when it comes to making an investment decision. It’s Centrica’s outlook that’s arguably far more important.

Today, the £4.5bn cap business said that it was “broadly positive” on trading in 2022. That’s not exactly bullish but it’s probably realistic considering the “wider range of outcomes” noted by the company as a result of high commodity prices. The possibility of further regulatory changes is another potential headwind.  

Opportunity knocks?

Centrica shares currently trade at 11 times earnings. That’s a low valuation relative to its industry and the market as a whole. So, am I interested in buying now?

Well, there are a few things that keep me wary.

Perhaps most prominently, I need to remember that Centrica has absolutely no control over pricing. As an indication of this, the company stated that it was still too early to say what the impact of Russia’s invasion of Ukraine would be. I prefer to own stakes in companies with more say in their destiny. 

Another thing worth noting is the lack of dividends. That’s hardly surprising for a turnaround stock. However, I like the idea of being compensated for my patience if/when the Centrica share price goes into reverse as it has today.

On a positive note, total free cash flow jumped 71% to £1.17bn in 2021 so perhaps holders won’t have too much longer to wait? The company did also say today that there was now a “clear path to restart paying a dividend”. Personally, I’ll wait until I see it.

My verdict

As encouraging as today’s results are, I don’t think they’re enough to radically alter my feelings about this stock. If I did have the cash to spare right now, I’d be taking full advantage of the market crash and buying shares in higher-quality companies elsewhere in the UK market. 

Yes, this FTSE 250 member may have done well over the last year, but I’m under no illusion that a full recovery for the Centrica share price may be many years away, if it comes at all. As someone who is looking to compound his wealth, that doesn’t appeal. 

The post The Centrica share price falls as profits double. Time to buy? appeared first on The Twelfth Magpie.

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Paul Summers 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.

As an investor looking to build his wealth over decades, I’m naturally drawn to quality growth stocks to buy and hold. The lure gets even stronger whenever I’m given a chance to load up at reduced prices. With geopolitical tensions rising, I think we could be entering such a period now. 

With this in mind, here are three top-tier titans I’ve got my eye on. 

Croda International

Shares in chemicals firm Croda International (LSE: CRDA) are down almost 30% year-to-date. That’s an awfully big drop for such a great company. While I’m not sure I’d buy just yet, I do get the sense that opportunity is knocking increasingly loudly. 

For the uninitiated, Croda has been around for almost a century. It produces ingredients for manufacturers in the home care, beauty, personal care, and fragrance market. It also operates in the Life Sciences space (providing solutions to protect crops, for example). I can’t see either of these markets ceasing to exist, even if Croda has struggled to grow profits recently. 

On the downside, the shares still look highly valued at 28 times forecast earnings. That’s a bit higher than the company’s five-year average P/E. With investors showing a penchant for (possibly-lower-quality) stocks on cheaper valuations right now, I wouldn’t be surprised if there was more selling pressure ahead.

It’s a bit expensive for me at present, so it stays on my watchlist for now. 

Next

FTSE 100 clothing firm Next (LSE: NXT) is another company whose share price has been struggling. A 15% drop in 2022 so far leaves the stock sitting at a 52-week low and changing hands for just 12 times earnings. That’s a low valuation for a firm that has built a reputation for consistently great returns on capital and fat margins.

Then again, it’s worth considering the wider context. With higher prices pushing many in the UK to watch their non-essential spending, I wonder if things could get worse before they get better. Next month’s Q4 numbers will be pivotal in determining how much the business is suffering. Recent activity suggests investors are already bracing themselves for a few nasties.

Under the stewardship of Simon Wolfson, there’s no doubt in my mind that Next is one of the better companies in the FTSE 100. I’m also convinced it can and will bounce back from this sticky patch. 

Even so, I’m inclined to hold off buying for now. 

Auto Trader

A final FTSE 100 growth stock I’m keeping tabs on is Auto Trader (LSE: AUTO).

A beneficiary of the global shortage in semiconductors and, subsequently, new vehicles, buyers have been flocking to its site even more than usual. Indeed, the clamour for used motors sent the share price rocketing last November.

Unfortunately, the very same stock is down 14% year-to-date. Some profit-taking is understandable. Like Next, however, I wonder if demand could soften as inflation places huge pressure on discretionary incomes. That’s even if supply chain issues are resolved.

Having said this, a P/E of 25 is cheaper than digital peers such as Rightmove and considering its dominance of the industry in which it operates. As such, I’d be prepared to buy Auto Trader hand over fist if things get worse over the next few months. Just like this top investment trust.

The post 3 ‘no-brainer’ FTSE 100 growth stocks to buy if markets keep falling appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Auto Trader, Croda International, and Rightmove. 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.

With investors enduring a tough start to 2022, I’m been taking a closer look at FTSE 100 stocks that tend to experience less price volatility relative to the market.

These are known as low beta stocks. In theory, anything with a beta of below one should move less in line with the index (which always has a beta of one). By contrast, stocks with a beta of over one could give investors a more bumpy ride. 

FTSE 100

The essential nature of what National Grid (LSE: NG) does — “connecting millions of people to the energy they use” — makes the company a potentially great stock to hold at times like these. The Grid has a beta of just 0.3, according to data from Stockopedia. This should make it far less prone to violent market moves.

Another attraction is the dividend stream. In its current financial year, the company is expected to return 50.8p per share to its owners. Using today’s share price, that gives a yield of 4.7%. So, even if it did fall back, there’s a nice payout to compensate. 

The P/E of 17 is higher than the five-year average of just under 14. However, this makes sense considering how rattled investors have been recently. One potential drawback is that the shares probably won’t fly when markets recover.

Resilient sector

As sectors go, anything to do with healthcare tends to hold its own when investors get skittish. Hence, a company like GlaxoSmithKline (LSE: GSK) may offer me some protection. In line with this, GSK has a beta of 0.6. 

The shares are up slightly so far this year, although this may be more to do with Unilever sniffing around its consumer healthcare business. It will be interesting to see what under-fire CEO Emma Walmsley has to say about the rejected bid when the company reports on Wednesday.

At 3.3%, GSK stock comes with a decent dividend yield. It’s also cheaper than FTSE 100 peer AstraZeneca at less than 14 times earnings. That said, its drugs pipeline could do with a shot in the arm and remains a potential risk. 

‘Buy again’ brands

Speaking of consumer goods companies, a final stock I’d consider buying to mitigate market volatility would be Reckitt (LSE: RKT).

Like the other stocks mentioned, Reckitt has a low beta (0.3). It also possesses a bursting portfolio of ‘sticky’ hygiene, health and nutrition brands. While the rising cost of living can force people to reel in their discretionary spending, products that keep things clean and safe are unlikely to be sacrificed, especially following a global pandemic. 

My only concern with Reckitt is that it hasn’t learned from its horrible acquisition of the infant formula business from Mead Johnson a few years ago. This brings me to a vital point about low-beta stocks.

No guarantees

A low-beta value now does not guarantee anything about the future performance of a company’s share price. Before the Financial Crisis, FTSE 100 juggernauts like Lloyds Bank were regarded as relatively safe destinations for investors’ money. That hasn’t worked out well. 

Therefore, a vital point to grasp is that beta values change over time. Nor are they a replacement for in-depth research. This is why I will continue to diversify my portfolio across all sorts of quality companies, thereby giving myself a better chance of growing my wealth slowly but surely over the long term.

The post 3 ‘safe haven’ FTSE 100 stocks to buy appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline, Lloyds Banking Group, Reckitt plc, and Unilever. 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.

As scary as such drops can be, I’ve been taking the opportunity to load up on a fund whose performance prior to the start of 2022 had been excellent.

Solid gains

Managed by Stephen Yiu, LF Blue Whale Growth returned 20.8% in 2021, according to its most recent fact sheet.  That’s a better return than its benchmark. The IA Global Sector average was 18%. All told, the fund has more than doubled investors’ money in a little over four years.

One reason for this stellar performance is the number of tech-related stocks owned by Blue Whale. These include Microsoft, Adobe and Alphabet. Another relates to just how concentrated the fund is.

Blue Whale’s portfolio is made up of just 27 holdings, almost 73% of which are US-listed firms. You probably don’t need me to tell you any strategy that embraced being overweight in stocks from across the pond paid off handsomely in 2021.

Unfortunately, the first month of 2022 has taken a rather large chunk out of last year’s gains. So the question to ask is whether the current market crash is a great opportunity to buy more. 

New bear market?

On the one hand, the recent rout in tech stocks could continue if the Federal Reserve keeps giving out signs that it’s ready to shift its monetary policy. That’s potentially problematic for Blue Whale’s portfolio, given how concentrated (and potentially more volatile) it is.

Regardless of what the Fed does, it’s possible traders will move more of their money into value stocks hit most by the pandemic anyway. Rising tensions in between Ukraine and Russia, while seemingly not all that relevant to the performance of a US-focused fund, could also push investors to the exit as a cautionary measure.

Is this the dawn of a new bear market? It’s entirely possible.

Back quality

Of course, there are reasons to stay bullish too. One argument is that all this will prove transitory. With so many US stocks now at least in correction territory, the worst could already be over.  And when we get big sell-offs, the recovery can be just as swift. Thanks to inflation, staying in cash is hardly appealing. 

Perhaps the biggest motivation for feeding my money into Blue Whale specifically is its attitude to stock selection. Like rival Fundsmith Equity, Yiu looks for high-quality shares. He also avoids those “at the mercy of cyclical economic gravity“. The fund has a strict approach to valuation too. This means investors don’t need to worry about owning unprofitable story stocks.

Another potential tailwind is Blue Whale’s size. As a relatively young fund with ‘just’ £1bn in assets, Yiu has considerable flexibility in what he is able to buy. I’d be amazed if he hasn’t put some money to work in recent days.

Long-term focus

The reversal in the fund’s fortunes is a reminder of how quickly sentiment can change. So long as I adopt a long-term mentality (not dissimilar to Yiu) while also maintaining a degree of diversification, I’m confident that increasing my investment here will pay off. I’m still backing Blue Whale.

The post 1 fund I’ve been buying during the market crash appeared first on The Twelfth Magpie.

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Paul Summers owns shares in LF Blue Whale Growth and Fundsmith Equity. 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.

While leaders have reinstated the mask policy and travel restrictions, the emergency G7 meeting today could force the government to restrict public movement as nine Omicron cases have been identified in the UK. Although I think a Christmas lockdown is unlikely, I would be unwise not to prepare for the worse. Here are two UK shares that I’d buy in the case of another lockdown.

Essentials supergiant

If another lockdown is likely, I think Tesco (LSE:TSCO) is a no-brainer. Although I do not expect the restrictions to be severe or long-lasting, the supermarket chain would become an essential business if we are restricted indoors again. Also, the business has been very stable across 2021, holding on to the consumers it gained during the pandemic. In the last six months, Tesco shares are up 24% (though down around 2.5% across the last 12 months). 

Despite these six-month returns, I wouldn’t consider Tesco shares under normal market conditions. I think there are better investment options. The supermarket sector has been operating under razor-thin margins and fear of being undercut by discount retailers. Also, the Amazon invasion has hit the supermarket sector, with the multinational company increasing its physical store presence globally.

However, Tesco utilised the last lockdown to improve its home delivery service in the UK. If the government decides to impose certain restrictions, I think public spaces, including restaurants and bars, will be closed. And this could cause a temporary surge in sales for Tesco. Also, Tesco shares look very cheap at the current price of 280p, trading on a price-to-earnings growth (PEG) ratio of 0.1.  I would consider Tesco shares if a Covid-driven market crash becomes inevitable.

Gaming growth stock

Team17 Group (LSE:TM17) is one UK stock I have been following ever since the 2020 gaming boom. The industry gained a lot of momentum the last time we were forced indoors and I expect a similar reaction from investors this time around. With the Metaverse gaming project gaining traction, the gaming industry is trending towards virtual, collaborative world-building games. The popularity of multiplayer games is exciting for TM17. Its focus and most successful titles have been in this genre.

When I look at TM17’s market performance over the last 12 months, things look bleak. A 20% fall in share price in a year might be alarming at first, but I think it was expected after the 2020 gaming boom. Looking at the core financials, TM17’s Return On Capital Employed (ROCE) stands at 23%, higher than the industry average. I see this as a positive sign for the company, which has a large pool of insider investors as well.

However, the gaming space is incredibly unpredictable at the moment and in such a fast-evolving space, it is hard to maintain stability. Large investors are still sceptical when it comes to gaming companies and prefer the most tested avenues. But I am very optimistic about the space and, if we face an Omicron lockdown, I think TM17 offers a good option that I would hold for the long term.

The post Stock market crash? I’d buy these 2 UK shares appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon and Tesco. 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.

Considering all the headwinds faced, I imagine most investors will put 2021 down as a pretty good year for their portfolios. Even after Friday’s wobble, the FTSE 100 and FTSE 250 are still well above where they stood in January. Yes, there have been a few inevitable ups and downs, but nothing to compare to the market crash witnessed in the previous year.

But what about 2022? Like a lot of things right now, crystal balls are currently out of stock so one can only speculate. However, this is not a fruitless exercise. At the very least, it reminds me to hope for the best, but prepare for the worst. 

Is a market crash on the way?

There’s no shortage of reasons for thinking that 2022 might be less lucrative for investors. Or even an unmitigated disaster.

Soaring Covid-19 infection levels in Europe don’t exactly bode well. Nor does the emergence of a new African variant. Boris Johnson believes that the UK should escape another national lockdown, but who can really say at this point?

The pandemic isn’t the only thing that could hold equities back. Another is the not-so-transitory inflation we’re seeing. This may lead central banks to raise interest rates. Although arguably long overdue, it’s unlikely the market will celebrate this move. A lot will depend on the frequency and magnitude of these hikes.

Current valuations are worth pondering too. Across the pond, the S&P 500 continues to set new highs with such frequency that it barely causes a ripple in the media. To complicate matters, this momentum is largely down to just a handful of tech stocks that could be subject to increased regulation going forward.

Last, but not least, there’s an awful lot of speculation going on. The emergence of non-fungible tokens (NFTs) is just one example. 

So what am I doing about it?

Well, let me tell you what I’m not doing first. I’m not worrying. Or, to be more precise, I keep reminding myself of just how futile worrying about a stock market crash is. I can’t control what happens out there. I can only control my own behaviour.

So, here’s what I’m doing:

• Continuing to drip-feed money into funds and shares where the valuations aren’t absurd and the investment case remains intact.
• Gradually accumulating some dry powder on the chance 2022 turns out to be a shocker (and, consequently, a great opportunity to buy shares).
• Monitoring a watchlist of great businesses that are just a little too expensive for my liking. This FTSE 100 stock is a great example.
• Checking my portfolio less. If I trust the businesses I own, what’s the point of excessively monitoring them? Indeed, the prospect of a market crash is helpful in testing how much conviction I truly have. 
• Reminding myself to watch less news and read more history. The latter will show that crashes/corrections are far more common than many investors believe. And, so far at least, things have always recovered.                           

Look beyond 2022

By now, you’ll have gathered that my investment strategy is Foolish to the max. It’s about focusing on the long term. It’s about ignoring the panic and gnashing of teeth. It’s about accepting that market capitulations are inevitable and, yes, healthy.

2022 might end up being great for investors like me. If not, at least I have a plan…

The post Stock market crash in 2022? Here’s how I’m preparing for it appeared first on The Twelfth Magpie.

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Paul Summers 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.

Avoid the frothy sectors

No one wants to buy a stock just before it plummets. To keep the risk/reward trade-off in my favour, I’m therefore being careful not to throw money at shares trading at frothy prices. Many S&P 500-listed companies look guilty of this right now, particularly those which aren’t yet profitable. Renewable energy stocks also look priced to perfection.

This isn’t to say an expensive share can’t get more expensive. Nevertheless, the more detached a stock gets from a company’s fundamentals, the lower my ‘margin of safety’ will be. This is why, from the perspective of risk, investing during a market crash will always trump investing when everyone’s toasting their portfolios.

Build a wishlist

Since no one rings a bell prior to a market crash, I think it’s a good idea to always have a wishlist of stocks I’d love to own, but are currently too expensive. This way, I’ll know exactly which companies I should be targeting when shares (temporarily) tumble and emotions are high. I’ll also be less prone to getting distracted by something mediocre. This is surprisingly easy to do when everything suddenly looks a lot cheaper.

Naturally, the companies that feature will be determined by the underlying strategy. At this stage of my life, I’m more interested in growth than generating income. I’m also a sucker for quality stocks. These are companies that generate high returns on capital employed (ROCE) or enormous profit margins. A leader in a niche market that has high barriers to entry is similarly desirable.

Have a cash reserve

Building a list of stocks to buy in the event of a market crash is all well and good. However, all this work will be wasted if I don’t actually have cash on hand to snap them up.

Sure, there are drawbacks to not being fully invested. Cash earns very little in interest. This means its value is eroded by inflation the longer I do nothing with it. It’s also psychologically hard to keep money in reserve when every other asset keeps rising in value.

So, how much is enough? Personally, I avoid sticking to a fixed percentage. Instead, I adopt an even more simplistic litmus test. If my cash/equity balance allows me to sleep at night, I’m probably on to a good thing. 

Keep buying

This final point may sound hypocritical, given the above. However, I do think it’s important to strike a balance between preparing for a market crash and being overly cautious. As master investor Peter Lynch once said: “More money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” 

On account of my lack of crystal ball, I’m still drip-feeding money into positions I already hold, albeit smaller amounts. Again, the risk/return must also remain attractive. Unless I spot a better opportunity, I’m also not selling anything I own either. 

Adopting a humble mindset and accepting what I can’t know for sure should mean I’m better prepared for whatever transpires.

The post How I’m preparing for the next stock market crash appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Paul Summers 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.

The incredible recovery seen since the March 2020 market crash makes that meltdown something of a blip. This is why I already have a list of stocks to buy when share prices (inevitably) head south again.

Having looked at the FTSE 100 and FTSE 250 in previous articles, today I’m focusing on three stocks from the small-cap (non-AIM) space.

Treatt

Ingredients manufacturer Treatt (LSE: TRT) supports the global flavour, fragrance and consumer goods markets. That may not sound particularly racy compared to a glitzy tech share. However, the returns generated over the last year and five years (+63% and +405% respectively) speak for themselves.

On top of this, the gradual reopening of hospitality venues across the world should be a great tailwind for the company which remains a leader in its field. 

Of course, there are still potential headwinds ahead. A resurgence in Covid-19 cases and the subsequent re-introduction of certain restrictions could put the brakes on this momentum. As solid a business as this is, a P/E of 36 for the current financial year (ending 30 September) doesn’t give me much of a margin of safety either.

Personally, I’d much prefer to snap up this stock when investors are throwing the baby out with the bathwater. 

Bloomsbury

Harry Potter publisher Bloomsbury (LSE: BMY) is another small-cap star I’d buy in a general market crash.

A huge beneficiary of multiple UK lockdowns, revenue and profit soared in 2020 as many people opted to lose themselves in a novel or seven to pass the time.  And, consequently, his has boosted the share price considerably ( up 75% over the last 12 months alone).

Quite whether this momentum can be sustained is another thing. While indulging in a book will hardly break the bank, I wonder if a lot of casual readers will now focus on more active pursuits. Should this be the case, it’s surely inevitable that earnings will moderate.

It’s also worth remembering that publishing — like the movie, music and gaming industries — can be unpredictable. There’s no guarantee a particular title will sell as many copies as hoped.

Sure, BMY’s current valuation is hardly excessive, at 19 times forecast earnings. There’s a nice dividend stream too. Even so, I’d be inclined to really pile into this stock when the company’s purple patch has ended.

Motorpoint 

Car seller Motorpoint (LSE: MOTR) is a third small-cap stock I’d potentially buy if/when we experience another market crash.

Thanks to the shortage of semiconductors for new vehicles, MOTR has seen strong demand for second-hand cars as the UK emerges from lockdown. Accordingly, the company reported “record sales” in the first two months of its new financial year back in July.

Importantly, these sales were also “significantly ahead” of numbers logged in the year before Covid-19 began wreaking havoc. Add in a commitment to becoming an e-commerce-led business and I think the future looks bright for the £330m-cap.  

Then again, MOTR arguably involves the most risk of the three companies mentioned here. After all, few people think about buying a car when troubled times arrive. This is also a low-margin business in a competitive industry, making the forward P/E of 23 appear a bit expensive. 

Having climbed almost 33% in value in the last 12 months, I’m not sure that now’s the best time for me to buy. 

The post 3 small-cap stocks I’d buy in the next market crash appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bloomsbury Publishing, Motorpoint, and Treatt. 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.

FTSE 100 market leaders

The first stock on my shopping list would be Auto Trader. Operating completely online (the print version was ceased years ago), the FTSE 100-listed vehicle marketplace is the clear market leader. Apparently, more than 75% of all time spent looking at car adverts is on the company’s site. I suspect this figure might be even higher now following the scramble for second-hand motors due to the global chip shortage.

The other leader is property portal Rightmove. Like its automotive equivalent, this FTSE 100 constituent is the go-to destination for buyers and renters. For years, competitors have tried but failed to take meaningful market share, suggesting RMV’s brand serves as a great economic moat. Throw in a bulletproof balance sheet and (like Auto Trader) spectacular returns on capital, and RMV would be a compelling purchase for me.

There are still things to be aware of, of course. The vehicle and housing markets in the UK should moderate in time and could even plummet in the event of a serious economic wobble. Moreover, I don’t expect either company to ever be screamingly cheap, since quality rarely lacks friends. So I’d need to stay realistic with my target purchase price.

Luxury brand

Third on my list of FTSE 100 to buy is luxury brand Burberry. This may seem an odd choice, especially as the company still hasn’t recovered from the coronavirus crash. Moreover, the recent fall in retail sales in China doesn’t exactly bode well. After all, BRBY is hugely dependent on shoppers continuing to buy into its highly-coveted brand.

As an existing owner, I’m not worried. Burberry’s long history (and sound finances) clearly mark it as one of the FTSE 100’s most resilient members and one I’d continue to buy in a correction.

Notwithstanding this, it’s important for me to monitor just how much exposure I’d have if I continued to buy on a correction. Too much money in one company’s risky. I want to sleep at night!

Then again, all this may prove immaterial. I still reckon BRBY will be bought out before long. 

Priority buy

Last of my FTSE 100 buys would be a stock I once owned and stupidly decided to sell too soon. Health and safety tech firm Halma‘s share price has rocketed since. As I type, it’s up 36% in the last year. Anyone buying five years ago would have tripled their money. 

Still, a forward P/E of 50 suggests shares are now priced to perfection. Yes, Halma operates in a highly defensive sector. And yes, a multi-decade history of hiking dividends is nothing to be sniffed at. However, there comes a point when it’s wise to pull back from a purchase if I feel I’d be overpaying.

This is why the HLMA remains on my watchlist, for now. When the next correction inevitably comes, I want to have some dry powder ready… 

The post 4 FTSE 100 stocks I’d buy during the next market correction appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Burberry. The Motley Fool UK has recommended Auto Trader, Burberry, Halma, and Rightmove. 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.

Subdued market

Today’s statement started well enough. Having made the most of the last financial year, CMC said that client assets under management (AuM) continued to hit “near-record levels“. The number of active clients had also remained fairly consistent over the five months to the end of August and was up “around a third” from before the whole coronavirus crisis kicked off.  

However, it was at this point that the tone shifted. According to CMC, “subdued” market activity during July and August has meant lower trading by new and existing clients. Having attracted so many people to its platform over the last year or so, CMC also reported that client income retention has been “moderately below” its 80% target.

If the recent lack of activity continues, it believes net operating income for FY22 will now come in somewhere between £250m and £280m.  

Clearly, news like this (as well as an indication that operating costs were increasing) was never going to be greeted enthusiastically by the company’s investors. But is a 25% fall truly justified? 

Has the CMC Markets share price fallen too far?

Personally, I think the fall is overdone. Having benefited so much from the incredible volatility seen in markets last year, there was always going to come a time when trading moderated. Let’s not forget that, before today, the CMC Markets share price had increased 35% in just 12 months. Nothing rises in a straight line. 

There’s also a lot still to like about this company, at least in my view. It appears to have a sound strategy for growth and an incredibly robust balance sheet. The returns on capital metric beloved of UK star fund manager Terry Smith has been high for many years. A potential 16.9p per share dividend also has this stock yielding a chunky 5.5% at its new, much lower price. Now, no income stream can be guaranteed. Even so, this does strike me as adequate compensation for what could be rough times ahead.  

On the downside, the small ‘free float’ means the share price is potentially far more volatile than that of other stocks. Today would appear to be clear evidence of that! Second, the threat of increased regulation in this industry can never be discounted. Third, there’s no shortage of competition for clients. 

Letting it settle

I’d need to be very careful before adding CMC Markets to my portfolio. After all, I already own shares in the market leader IG Group. Having too much exposure to one industry invites trouble. It can be wonderful during the good times but a potential nightmare during the bad.

That said, if I didn’t own IGG, I’d be tempted to get involved with CMC at some point. This FTSE 250 member presents as a quality operator, albeit one that has become a victim of the sudden swing in Mr Market’s mood.  

Quite where the share price goes in the near term, however, is anyone’s guess. In recent weeks, we’ve seen several previously-loved stocks tumble and continue tumbling. Avon Protection and Best of the Best spring to mind.

If I did cave in and buy, I’d wait for the dust to settle first.

The post Here’s why the CMC Markets share price (CMCX) has crashed 25% today appeared first on The Twelfth Magpie.

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Paul Summers owns shares in IG Group. The Motley Fool UK has recommended Avon Protection. 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.