Nobody know what might happen next in stock markets but they are certainly on edge right now. Legendary investor Warren Buffett says to be greedy when others are fearful. There seems to be a lot of fear in markets currently. I have a shopping list of high-quality companies whose shares I would like to buy for my portfolio if there is a stock market crash.
One of them has already seen its price tumble in recent weeks. If it keeps heading down, I see a buying opportunity for my portfolio.
Cause for alarm?
The share in question is Halma (LSE: HLMA). The company specialises in life-saving equipment like alarms. But lately the most alarming thing for the company’s shareholders may have been the decline in the Halma share price. It has tumbled over a quarter since the start of the year. Over the past 12 months, the decline has been a more modest 9%.
What’s behind the share price fall?
I think it has been driven by valuation concerns more than worries about the health of the underlying business. After all, at the interim stage in November, Halma reported revenue up 19% on the equivalent period the year before. Adjusted earnings per share rose 25% and the company increased its interim dividend by 7%.
The company has a profitable, established business in a lucrative niche. That has enabled it to increase its dividend annually for the past 43 years. That is rare among UK shares and gives an indication of the quality of Halma’s business. But such quality often does not come cheaply. In recent years, Halma’s shares had been looking more and more expensive. Even now, I think the price-to-earnings ratio of 34 looks expensive for my portfolio.
Cheaper but not cheap
The interim results were strong and Halma has a proven business model. But being a successful investor does not just involve spotting great companies. It is also about buying at the right price.
Despite the share price fall, I still do not see Halma shares as cheap. The price reflects ongoing high expectations for the business. But despite its proven ability, the company continues to face risks. It has said that ongoing disruption in its supply chain and the labour market could add costs. That may hurt profits.
My move in a stock market crash
Halma shares have already fallen significantly. If there is a stock market crash, they could head down further in line with the broad market. At that point, Halma shares may trade on a valuation that makes them an attractive addition to my portfolio.
So the alarm company is one of a number of shares on my shopping list. The names are all high-quality companies I would like to add to my holdings, at the right price. If there is a stock market crash, I am ready to swing into action like Buffett and start shopping for potential bargains.
