With global equity indexes at a high level, and economic uncertainty rising, I’ve been following Warren Buffett’s lead recently and stockpiling cash in preparation for a stock market pullback.
Of course, such pullbacks are notoriously hard to predict in advance. However, I want to be ready to capitalise should we see a market dip in 2020. With that in mind, here’s a look at two FTSE 100 stocks I’ll be looking to buy if the market takes a hit.
Sage
The first FTSE 100 stock I’m keen to buy is Sage (LSE: SGE). It’s a leading provider of cloud-based accounting and payroll solutions. I already have a small position in the stock as I bought some shares last year at around 660p, however, I’m keen to add to my holding.
In my view, Sage is one of the most attractive companies in the Footsie. Not only does it operate in a high-growth industry (the market for cloud accounting software is forecast to grow at 8.6% per year between now and 2024) but the nature of the business also provides a strong competitive advantage as customers cannot easily switch between service providers. In addition, the company is very profitable (three-year average return on capital employed of 17.2%) and has a strong balance sheet. I’ll point out that I’m not the only one who holds Sage in high regard – the stock is held by two of the UK’s top portfolio managers, Terry Smith and Nick Train, in their respective equity funds.
Sage shares are a little bit expensive at present as the stock has had a good run over the last six months. Currently, the forward-looking P/E ratio is about 26.8. I’m hoping stock market weakness presents an opportunity to pick up the stock at a lower valuation.
IHG
The next stock I want to buy is hotel operator InterContinental Hotels Group (LSE: IHG). It owns a fantastic collection of leading hotel brands including InterContinental, Holiday Inn, and Crowne Plaza.
The main reason I like IHG is that I see it as a good way to play one of the most dominant demographic trends in the world today – the retirement of the Baby Boomers. In the US alone, there are 10,000 Baby Boomers retiring every single day. Research shows that many plan to travel extensively in retirement. For example, a 2019 study by retiree-focused non-profit body AARP found that this segment of the population plans to take four or five leisure trips every year after retiring. And hotels are the preferred form of accommodation for the majority. As such, I think IHG is poised to do well over the next decade.
IHG’s recent full-year results were solid, despite performance being impacted by economic uncertainty and political unrest in Hong Kong. For the year, revenue was up 8% and adjusted earnings per share increased 3%. The dividend was lifted 10%, which in my view, suggests that management is confident about the future, despite uncertainty associated with the coronavirus.
IHG shares currently trade on a forward P/E ratio of about 20.4. I actually think that’s quite reasonable, given the company’s growth prospects. However, I’m hoping a market pullback provides an even better entry point.
