A lot of investors are talking about the possibility of a stock market crash. But I don’t think that would be the end of the world – in fact, I can think of something much worse.
I agree that share prices look high right now, at least in certain sectors. A big drop however, could signal a once-in-a-decade opportunity to get rich.
Costco
Five years ago, shares in Costco Wholesale Corp (NASDAQ:COST) were trading at $374. That implied a price-to-earnings (P/E) ratio of 41 – higher than Apple or Alphabet.
If the stock had stayed at the same price, the firm’s earnings growth means it would now be trading at a P/E multiple of around 20. That’s high, but I don’t think it’s unreasonable.
But Costco shares haven’t stayed where they are – they’re up 130%. And they’ve never really traded at a P/E ratio below 32, even when share prices have been under pressure.
If the stock had crashed, investors might have had a chance to buy it at an attractive multiple. But this hasn’t happened and that means buying has always come with a significant risk.
Share prices
High share prices give investors a dilemma. They can either buy at perhaps-unjustified levels and hope prices stay up for long enough to let profits catch up, or they can wait and hope for a crash.
The trouble is, both of those involve hoping, which I don’t see as a legitimate investment strategy. Fortunately, there’s another option available to investors.
Even when high valuations in some sectors make the stock market as a whole look expensive, there are often opportunities somewhere. The challenge for investors is tracking them down.
Fortunately for UK investors, I don’t think they have to look far. There’s at least one in the FTSE 100 that jumps out me as a stock worth considering right now.
Bunzl
Bunzl‘s (LSE:BNZL) a FTSE 100 distributor of non-food consumables. That means things like disposable tableware, carrier bags, packaging, and safety equipment.
The stock’s down 25% this year, mostly due to weak demand in the US. But some operational missteps in its shift to own-brand products didn’t exactly help matters.
This highlights the fact that no stock’s without risk and a US recession is an ongoing threat. The firm however, seems to have got things back on track relatively swiftly.
Bunzl’s strategy of acquisitions to drive growth has been a rewarding one for shareholders. And a fragmented market means I think there’s a good chance it continues for some time.
Finding opportunities
Investors looking to buy shares should welcome a stock market crash. Lower prices would likely create opportunities that don’t come around often in the normal course of business.
I think it would be far worse if the overvalued parts of the market stayed expensive until company fundamentals catch up. That would make buying risky.
I’ve got a list of shares I’m looking to buy if the stock market crashes. But I also think there are good enough opportunities for me to take advantage of while I wait for that to happen.
