The UK stock market has been performing well recently. In fact, the FTSE 100 index is up 28% over the past year. Yet some are arguing that there’s an increasing disconnect between the rising stock market and the actual UK economy. One way this gap could close is if we see a stock market crash over the next few months. If that does happen, here are some of the best stocks that I’d buy.
Benefiting from volatility
A stock market crash should contain the usual characteristics of high volatility and large daily swings. From that angle, stockbrokers and investment managers should benefit. Therefore, I’d consider buying shares of Hargreaves Lansdown (LSE:HL). The company offers retail investors a platform to trade stocks as well as offering ISAs and other investment tools. The share price is up 3% over one year.
The business makes more money when clients engage in higher levels of activity. So more volatility in the markets would be a good thing for Hargreaves Lansdown. As an ISA provider, it should also benefit from an influx of funds in a few months to tie in with the deadline next April.
Although I think a stock market crash could see the company make higher revenue per client, the risk is that some clients withdraw funds. If investors are worried about the root cause of the crash, then they might take funds out and hold it as cash.
Getting help from the pros
A second company that I’d buy if we see a crash is Pershing Square Holdings (LSE:PSH). The stock is quite unusual in the sense that it’s basically a listed hedge fund. The fund managers have a fairly free remit on what stocks to buy and sell, along with other more complicated derivative trades. The bottom line is that the stock price should track the net asset value of the fund.
If we do see a stock market crash, I think holding some money with the professionals is a good move. The share price is up 37% over the past year. I know that the fund holds stocks from all over the world, but if I compare the return to the FTSE 100 benchmark of 28%, I can see the excess return generated.
The risk here is that trades can go very wrong. The founder, Bill Ackman, once made a huge loss betting against Herbalife. Another similar case could always happen.
A defensive option for the stock market crash
The final stock I’d pick up is J Sainsbury (LSE:SBRY). This might sound somewhat dull in comparison to the other two options. But if we do see a stock market crash, I’m going to want some protection. The supermarket chain should perform better than most in the market as it’s a defensive stock. It could see inflows from other investors who are thinking the same. Over the past year, the share price is up 43%.
The reason it’s a defensive stock is because the supermarket offers essential goods. Regardless of the underlying cause of the crash, people will still need to eat and drink.
A risk here is that supply chain disruption could mean the company might not be able to handle the surge in demand. This is something I’d need to keep an eye on.
