If there’s a silver lining to the dark coronavirus cloud for investors, it’s that markets are now considerably cheaper than they’ve been for a long time.
When will prices reach their lowest point? The simple answer is that no one knows. And since knows one knows, I wouldn’t attempt to dissuade anyone from putting at least some of their spare cash to work in the near future. Better to start buying quality stocks when they’re already on sale, in my opinion, than miss out on the eventual recovery.
With this in mind, here are three I’d consider beginning to accumulate today.
One can’t deny that the car industry has rarely faced such uncertainty.
For me, however, vehicle marketplace Auto Trader (LSE: AUTO) has a number of the things I look for when sizing up stocks: a huge market share, great returns on capital employed, and sky-high margins.
So, would I go ‘all in’ as things stand? Certainly not. Aside from the idea of a one-month bear market following a ten-year bull market feeling a tad optimistic, few people will be looking to buy a car for a while.
Notwithstanding this, Auto Trader has sought to reassure investors that it’s in a good place financially. At the end of February, it had £111m of its revolving credit facility undrawn. There are certainly firms out there with less headroom than this, which might go some way to explaining why the share price is down less than 20% over the last month.
If you believe the long-term investment case remains solid (and I do), this quality operation warrants a closer look.
Despite only a few of its depots remaining open to serve trade customers, kitchen supplier Howden Joinery (LSE: HWDN) is another firm I’d have no trouble dipping my toe into as things stand.
With £267m net cash and an undrawn borrowing facility of £140m, the FTSE 250 member was in an excellent financial position at the start of 2020.
To help things further, investment has been scaled back, the share buyback programme has been suspended, and the final dividend ditched until the full consequences of the coronavirus for the business are known. This all makes perfect sense to me.
Naturally, paying the mortgage will take priority over a new kitchen in a coronavirus-induced recession but the strong relationships that Howden has built up with customers over the years should prove priceless.
A third stock I’d feel comfortable buying at the current time is actually a former holding of mine – Manchester-based, fast-fashion giant Boohoo (LSE: BOO).
Although the company has still to update the market on the impact of Covid-19 on business so far, I sincerely doubt trading has remained as good as it was. To quote Next’s CEO, Lord Woolfson, “People do not buy a new outfit to stay at home“.
True as that may be, I suspect Boohoo stands a far better chance of bouncing back to form given its strong brand and the relatively inexpensive price tags of its wares. The AIM star also had £245m in net cash on its balance sheet back in January.
Boohoo’s stock is down 35% in one month. For anyone considering building a position now, I’m inclined to think the long-term returns will compensate for any initial period spent ‘underwater’.