I’m not the type to wait for a market correction or crash before buying stocks. But when prices fall, I’m also not one to shy away from an opportunity to load up my Stocks and Shares ISA.
The possibility of a recession in the US has traders worried. For long-term investors like me, though, this is a chance to be greedy when others are fearful.
Not everything that’s down is a bargain
Stocks are falling right now, but investors need to tread carefully. Not everything is as cheap as it looks.
Rolls-Royce is a good example. The stock is down 5.5%, but the last time the stock was this cheap was… last month.
Something similar is true of Apple. A 7.5% drop looks like a big move, but it only puts the share price back to where it was a month ago.
I’m convinced the downturn in share prices is a buying opportunity. But I don’t think everything is on sale right now.
The cheap get cheaper
In my view, the best opportunities in a situation like this are in shares that were already in or near bargain territory. In other words, stocks that were good value but are now great value.
That naturally causes me to look at the consumer discretionary sector. The most obvious example is Burberry, where the share price has fallen another 3.5% after struggling since the start of the year.
Likewise the Dr. Martens share price has just fallen another 6%. And this is on top of a 25% decline since the beginning of January due to a weak outlook for US consumer spending.
At today’s prices, I’d be happy buying either of these for my Stocks and Shares ISA. But I think both businesses are facing challenges that mean the best opportunities are elsewhere.
Amazon
The opportunity that jumps out at me at the moment is Amazon.com (NASDAQ:AMZN). The stock fell 8.78% after its earnings report and I think it looks set to keep heading lower.
I didn’t think there was much wrong with the company’s earnings report. Revenues came in below expectations, but this was mostly due to consumers trading down to cheaper products.
The prospect of a recession in the US means there’s a risk this might continue to weigh on sales in future. And there isn’t much Amazon can do to get the US economy moving.
What it can do, however, is keep improving its services so that it’s well-positioned for when things recover. That’s exactly what the business is doing right now and I expect this to pay off over time.
Top of my buying list
When industries go through cyclical downturns, the best companies often emerge in a stronger position than their rivals. And I think that will happen here.
Opportunities to buy shares in Amazon at attractive prices don’t come around that often. There’s a good reason for that – investors know it’s a quality business with a lot of earning power.
Right now, though, I think there’s an unusually good opportunity. With a global sell-off following a downturn after earnings, I’m looking to add to the investment in my Stocks and Shares ISA.
