The FTSE 100 is down nearly 7% since breaking 8,000 points in February. Will we face a full stock market crash just like we did in 2020? Well, I think the latest fall throws up some tempting value shares.
Today, I’m looking at five on the UK stock market that I rate as buys right now. If the market should go into crash mode, I think they’ll get even cheaper. So what’s my criteria?
Valuations
I want fundamental valuations below the market average, and below each stock’s long-term trend. On that, I’m mainly talking about price-to-earnings (P/E) ratio and dividend yield.
Both look a lot better when share prices are low. So here are five on my ‘to buy’ watchlist.
| Company | Recent price | 12-month change | 5-year change | Fcast P/E | Dividend yield |
| M&G | 184p | -13% | -18%* | 11 | 11% |
| ITV | 83p | +0.3% | -43% | 12.5 | 6.2% |
| International Distributions Services | 230p | -38% | -57% | n/a | 3.3% |
| Direct Line Insurance Group | 147p | -47% | -61% | 8.4 | 5.5% |
| Marks and Spencer | 154p | -5.8% | -40% | 9.4 | 3.0% |
Rethinking
I’m changing my mind on a couple of these. For years, I haven’t seen Marks & Spencer as a good value buy. So why now? And would I be mad to buy a retail stock when inflation is so high?
Analysts increasingly seem to think M&S has made it through the hard times. We could be in for a tough 2023, sure, but forecasters have earnings growth getting back on track in the next couple of years.
And after two years of no dividends, they suggest the return of a nicely progressive yield too. I haven’t decided on M&S yet, but the signs are there.
Renamed
I’m also turning bullish on International Distributions Services, even though I hate the name. In my mind, it will always be Royal Mail.
We saw a stunning share price recovery in 2020 and 2021. But then it crashed right back down again. This is another one where the City folks expect strong earnings and dividend growth in the next few years.
If they’re right, we could be looking at a 2024 P/E of only eight, with a 5.5% dividend yield.
A lot depends on whether the company is really past its industrial relations problems. And I’m cautiously optimistic there. This one is definitely creeping onto my radar.
Financial stocks
Two of my picks are in financial sectors, though these stocks have given investors some serious pain over the past decade. They possibly face the most short-term risk now.
Investment manager M&G was always going to suffer in a stock market slump. But its valuation puts it on my ‘to buy’ list now. I think it could be one of the best stock market crash buys around.
Direct Line slashed its 2022 dividend after a very hard year. But after a share price decline, the yield still looks attractive. And forecasts show it’s coming back strong.
All of these dividends are at risk. But I reckon investors really could bag some tasty long-term gains from them.
