So far it has been an uneven year for the stock market. The flagship FTSE 100 index fell sharply between February and March. It was not, however, in the territory of a stock market crash, which is regarded as a fall of 20% or more in a short period of time.
Since then, the FTSE 100 has moved up again: it now sits 5% higher than its level at the start of the year. Coincidentally, it is also up 5% over the past five years. But with a stagnant economy, galloping inflation, rising interest rates, and uncertain outlook for global trade, I think we could see a stock market crash at some point in coming years.
In fact, it is possible one may come this year. But market timing is hard, if not impossible. Rather than trying to predict the exact moment of the next market crash, I am acting to build wealth now.
Quality on sale
Specifically, I am doing exactly what I would do after a stock market crash: bargain hunting.
By bargains, I mean great companies on sale for prices that I think do not fully reflect their value. A crash can throw up all sorts of mismatches between price and fair value, as a market frenzy leads investors to dump even high-quality shares.
But I think some such bargains are available to me already, without even needing to wait for a stock market crash!
Take Legal & General as an example.
It has a strong brand, storied history, and large customer base. It throws off vast amounts of cash, allowing it to pay a generous dividend. The yield is currently 7.7%. Yet the financial services giant trades on a price-to-earnings ratio of just seven.
I see JD Sports as another example. It has more than doubled over the past five years. But its market capitalisation is £8.4bn. Contrast that to the company’s forecast headline profits before tax and exceptional items this year of over £1bn.
With a massive expansion programme set to see JD open hundreds of new shops annually, I think the shares are a possible bargain for my portfolio.
Unloved market
I could go on.
As far as I can see, the UK stock market is currently offering deep value in certain areas.
Nor am I alone in seeing things this way. This week alone, there came news of potential private equity bids for London-listed companies including THG Group, Network International, and Sureserve.
Private equity houses are hard-nosed financial operators – and they clearly see some value in the London market right now.
It may be that a gloomy economic outlook has hurt prospects for many UK firms. Each face individual risks too. A rocky stock market could hurt profits at Legal & General, for example, while JD’s ambitious expansion plan could pile on costs just as consumers are tightening their belts.
Nonetheless, I think the current market offers me the sorts of buying opportunities I associate with a stock market crash.
That is why I am buying British shares hand over fist at the moment. Why wait?
