I believe there is a potential stock market crash on the horizon that could cheapen FTSE stocks. A common consensus among economists and commentators alike is that we have been in a bull market for years now. With that in mind, a pull-back of some sort is due.
The Covid-19 pandemic caused a market crash back in March 2020. Since then, many markets have recovered but, in my opinion, the amount of money flowing into markets has caused them to become bloated.
I am aware no one can truly predict when a stock market crash could occur or what it would actually look like. If I knew that, I would call myself Mystic Jabran and stand to make a lot of money! I am not Mystic Jabran, but I have identified three FTSE stocks I would seriously consider buying for my portfolio after a market crash, if it were to occur.
What is a stock market crash?
In order to get ahead of the curve, it is important to define a stock market crash and understand it as best I can. It is a rapid and usually unanticipated drop in stock prices. This is usually across worldwide markets, not just FTSE stocks.
So what causes a crash? Well, it can be a side effect of a major disaster or an economic crisis in a country or region. Another cause could be the collapse of a speculative bubble. A contributor to a crash, and perhaps not a direct reason, is investor panic. When this occurs, the public begins to panic sell which actually deepens the woes of stock prices.
Examples of famous stock market crashes include the 1929 Great Depression, Black Monday of 1987, the 2001 dotcom bubble bursting, the 2008 global financial crisis and the most recent Covid-19 pandemic related crash.
I must note that there isn’t actually a threshold or defined criteria that identifies a crash. It is generally considered an abrupt double-digit percentage drop in any index, such as the FTSE, over a period of a few days.
FTSE stocks I would consider
- National Grid (LSE:NG.). If a market crash occurred, I would look at adding defensive stocks to my portfolio, and National Grid ticks that box nicely. These are stocks that hold up well in during a crash period, but at the same time won’t soar up too high when the market begins to rise. I would describe them as solid middle performers that have safe, non-volatile revenue streams. Energy and utility firms are usually considered defensive.
I believe National Grid could be a good addition to my portfolio post-crash. It currently offers a dividend yield of over 3.5% which would make me a passive income. Dividends are not guaranteed, however. In addition to this, it is joining the clean energy race, which I like to see as a potential investor. It knows where the future lies and is making the necessary moves.
The risk with National Grid is that its financials did suffer due to the pandemic related crash. Another crash could see similar results. This could affect any payout I would receive as an investor and as well as any recovery.
Unilever (LSE:ULVR). I think the consumer goods giant would be a good choice for my portfolio if the market crashed. Unilever has a plethora of home care, personal care, and health brands under its umbrella. It is also one of the top five FTSE stocks on the FTSE 100 index by market capitalisation. It is a powerhouse in terms of footprint, reach, and financials and could be a good stock market crash buy.
Unilever has an earnings yield of over 4% and a dividend yield of 3.8%, which means it would make me a nice passive income too. Currently, Unilever is actually close to £10 down from its 52-week high, which means it is cheaper than usual. If a crash occurred it would cheapen further. Overall, however, Unilever is not a cheap FTSE stock right now in my opinion. I have always believed you pay for what you get and Unilever is a top quality FTSE stock in my eyes.
The risk with Unilever is that an economic downturn could affect demand and hurt financials. Furthermore, there could be a change in consumer behaviour and preferences which could also hurt demand and financials. Overall, I like Unilever for my portfolio if there were a stock market crash.
Learning Technologies Group (LSE:LTG). Unlike my other two picks, LTG is not one of the leaders in its respective markets. I would consider this FTSE stock for its growth propensity. Prior to the 2020 crash, LTG was doing well but the demand for its services increased as remote working became the norm due to Covid-19.
The LTG share price is trading at all-time highs of 226p per share. It has steadily increased over the years, more so since the crash. I would be able to pick up cheap shares if the share price crashed as a result of a market downturn. Its most recent half-year results showed increased revenue and net income. More tellingly for me, I noticed that demand for services had increased substantially as had its global reach and footprint. This could help it develop into a market leader in e-learning and training.
The risk with Learning Technologies Group is that in times of a stock market crash, firms can tighten the purse strings. This cost cutting can lead to training being shelved or delayed. If this were to happen, it could affect LTG’s progress. Despite the risks, I would still buy LTG shares if a crash were to occur once more.
What I would do to prepare for the crash
I have identified three FTSE stocks I would buy for my portfolio if the market were to crash once more. I do have some steps to take in order to make sure I could capitalise on this as a savvy investor.
Firstly, I would make sure I have some cash ready to invest when and if a stock market crash occurred. With the cash ready, I would seriously consider two other aspects. These are quality and diversification. I would make sure I am investing in quality companies. To protect myself I would look to invest in a diverse set of companies. The examples above are all in different sectors. From utilities, to fast-moving consumer goods (FMCG), and technology.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Learning Technologies, National Grid, 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.