Why I don’t need a stock market crash to make great investments

Even if the stock market doesn’t crash, different sectors go in and out of fashion. Stephen Wright is aiming to use this to buy shares at bargain prices.

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A stock market crash can be a great opportunity to buy shares. But with the UK economy looking set to fend off a recession with flatlining growth, it might be a long time until the next one.

I don’t think investors like me need to wait for a big drop in share prices to make great investments, though. In fact, I’m looking for opportunities to buy stocks right now.

Market sectors

Even if the stock market as a whole is doing okay, there are usually sectors that are performing better than others. And there are often bargains to be found among those industries that are out of favour.

Right now, for example, the market seems to be focusing on a couple of main themes. One is rising interest rates and another is a post-pandemic normalisation.

Understanding these kinds of shifts can help investors like me find shares to buy. Even if the market as a whole isn’t on sale, I can find individual stocks that are.

Rising interest rates

One stock I’ve been buying lately is Primary Health Properties (LSE:PHP). The FTSE 250 real estate investment trust (REIT) has seen its share price drop by 21% over the last year as interest rates rise. 

The value of the company’s assets may have fallen, but its occupancy levels remain high. And with the majority of its rent coming from the UK government, the threat of defaults seems low.

As far as I can tell, the main risk with this stock is its debt. As a REIT, the company distributes 90% of its taxable income as dividends, which could create an issue when it comes to paying down debt.

I’m optimistic, though, that the firm will be able to manage its balance sheet well enough going forward. And with a 7% dividend yield, I think the risk is worth the potential reward.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Post-pandemic normalisation

Croda International (LSE:CRDA) is a FTSE 100 chemicals company that benefitted heavily during the pandemic. Over the last 12 months, though, the share price has fallen by almost 33%.

The stock has been falling because Croda’s customers no longer need the kind of inventory levels they had been building up during the pandemic. As a result, the firm’s revenues have been falling.

There’s a risk this could last longer than the company expects. If this happens, it will be a while until investors see a significant return. 

I think there’s an opportunity here for a patient investor, though. I don’t own the stock yet, but I’m looking to add it to my portfolio in the near future.

Buying shares

A stock market crash is a great time to buy shares. But those don’t come around often and it’s hard to predict when the next one will be.

Fortunately, I don’t think it’s essential to wait for a once-in-a-decade event. By paying attention to which factors are affecting stocks, investors can do well even when prices are holding up okay.

In my view, there are good opportunities to buy stocks right now. It’s just a matter of figuring out where the market is overestimating the risks and underestimating the rewards.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has positions in Primary Health Properties Plc. The Motley Fool UK has recommended Croda International Plc and Primary Health Properties Plc. 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.

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