The recent spike in government borrowing costs has ignited concerns of a possible stock market crash. However, here at The Motley Fool, we don’t try and predict short-term market movements. Instead, we focus on company fundamentals and review stocks based on their long-term qualities.
That said, recently, a considerable amount of money has flowed into some UK shares, pushing them to what appear to be unsustainable valuations.
Therefore, I think it may be sensible to avoid these businesses and focus on firms with more sensible valuations and sustainable long term growth outlooks instead. Here are two of my favourite companies in the current market. In the event of a stock market crash, investors may even be able to pick up shares in these firms at discounted valuations.
UK shares to buy
In my opinion, there are only a few companies as well-positioned to profit in all market environments as publicly-traded hedge fund group Man (LSE: EMG).
Hedge funds generally make more money for their investors in times of uncertainty. When markets are jumping up and down, there are more opportunities for these firms to take advantage of. This is what happened to Man last year. As a result, assets under management hit a record high of $123.6bn.
I think another stock market crash could lead to a repeat of this trend. That’s why I’d buy the stock for my portfolio of UK shares today.
That said, managing money can be a risky business. If Man’s performance starts to fall, investors will pull money just as quickly as they added it. The group faces other challenges as well. Heavy competition in the fund management industry is pushing down management fees and, as a result, Man’s income.
Stock market crash investment
Another company I’d buy for my basket of UK shares is gaming group 888 (LSE: 888). This business has been one of the biggest winners of the pandemic. With consumers stuck at home, many turned to online gambling to pass the time.
888’s net income could jump by more than 100%, thanks to this trend. And while a decline is forecast for 2021, I think investors should look past this short-term challenge. With over £100m of net cash on the balance sheet, the group is well-financed and has plenty of capital to acquire peers to drive growth.
But while I think this is one of the best UK shares to buy for a stock market crash, it does have its challenges. Gambling is a highly regulated industry, and the government could introduce new regulations which would hurt profitability at any point. There’s also the risk of fines and penalties if the group doesn’t adhere to existing rules.
All of these challenges could severely impact shareholder returns if the group runs into trouble.
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Rupert Hargreaves 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.