Historically speaking, September’s the weakest month for the stock market. And that could present some nice opportunities for investors who are ready to take advantage.
I’m not saying share prices are going to crash in the next six weeks. But I do think having an idea of which stocks might become attractive is probably a good idea.
Warren Buffett
For a while, I thought a stock market crash shouldn’t change what I was buying. If everything falls 20%, the shares that are cheap relative to others will still be the same.
That however, misses something important. As Warren Buffett points out, it’s better to buy shares in a quality company at a fair price than the other way around.
Buying stocks that were already cheap at even bigger discounts might seem attractive. But as Buffett points out, it’s not where the real action is in a stock market crash. Instead, what investors should look for is situations where shares in outstanding businesses fall slightly below their fair value. And I have a few examples in mind.
Wise
Wise (LSE:WISE) is a business that’s right up my street. It focuses on making international money transfers faster, cheaper, and more reliable for customers.
One thing that stands out to me about the company is the fact its take rate – the amount it charges for transactions – keeps going down. I think this is very positive. In the short term, it means lower margins. But lower fees make it harder for competitors to undercut them on price, strengthening their competitive position.
Wise generates a lot of profit by earning interest on customer deposits, but this could fall if rates come down. That’s why I’m looking for a better price to buy shares at.
Netflix
Another stock on my list is Netflix (NASDAQ:NFLX). Five years ago, there were two big questions about the company, but these have been pretty emphatically answered.
The first was how the business might compete with the likes of Disney and its huge content library. But as of May, Netflix’s share of the US market is 50% higher.
The second was whether people might cancel their subscriptions in an economic downturn. But the firm’s financial performance suggests it’s actually pretty resilient.
One of the main risks at the moment is the prospect of a 100% US tariff on movies produced elsewhere. Unfortunately for me, this hasn’t taken much out of the share price.
Being ready
Stock market crashes can be great opportunities to buy shares. But while there’s always another one on the way, they’re regular and unpredictable.
That means investors need to know which stocks they’d like to buy. Quality companies that fall to their fair value are better than average business at deep discounts.
Wise and Netflix are two stocks on my list. Both have extremely strong, competitive positions, but I think their share prices more than factor this in at the moment.
A big shake-up in the stock market however, and that could change. These aren’t the only shares I’m keeping an eye on with this in mind, but they’re near the top of my list.
