Despite some high-profile shares falling recently, the stock market is still close to record highs. But that doesn’t mean investors should stop looking for buying opportunities.
In situations like these, figuring out which companies to invest in becomes more important than ever. Not every stock is the same and in some cases, it could be an unusually good time to buy.
The Warren Buffett indicator
Warren Buffett once suggested a way of assessing how expensive the stock market is. It involves comparing the price of a country’s publicly traded companies with its gross domestic product.
Since then, that metric has become known as the Buffett indicator. And it’s at historically high levels right now in the case of US equities.
Source: Longtermtrends
Worse yet, stock market crashes have usually been preceded by the Buffett indicator hitting new highs. And that’s something investors should pay attention to.
If it’s a good enough metric for Buffett, then it’s probably good enough for the rest of us. But that doesn’t mean the thing to do is put off investing and leave it for another day.
Finding stocks to buy
In a stock market crash, it’s easy to find shares trading at attractive prices. When valuations are higher, it takes more work but there are virtually always opportunities to be found somewhere.
What goes for the index as a whole doesn’t apply to every individual stock. Spurs might be a terrible team at the moment, but that doesn’t mean we haven’t got some good players in there.
Whether it’s the FTSE 100, the S&P 500, or the global stock market, there are stocks that have performed badly recently. And I think some of those are well worth attention right now.
Investors need to be careful – sometimes a falling share price can be a sign the underlying business is in trouble. But other times, it’s a short-term opportunity to try and take advantage of.
A FTSE 250 favourite
As the stock market focuses on artificial intelligence (AI), it seems like an odd time to be thinking about Greggs (LSE:GRG). But the FTSE 250 bakery chain is exactly the kind of thing I have in mind.
The stock is trading at a price-to-earnings (P/E) ratio of 11, which is unusually low. And there are a few reasons why, but one is the danger that anti-obesity drugs could potentially weigh on demand.
Even if GLP-1 medication is here to stay, I’m not convinced it’s a long-term threat to Greggs. The company might have to change and adapt, but I don’t think this should be a major problem.
Fundamentally, Greggs is about using its scale to provide customer value. And whatever diets look like in the future, that’s something I don’t expect to lose its appeal with consumers.
Foolish investing
The Buffett indicator is something that investors should pay attention to. But long-term investing isn’t about making heroic calls about the future direction of the stock market.
It’s about finding opportunities to buy shares when they offer unusually good value. And even 12% off its 52-week lows, I think Greggs is an example that’s worth considering.
