The stock market’s never dull, but it feels especially volatile at the moment. A rapidly-evolving situation in the Middle East means share prices are moving even more violently than usual.
Sharp declines caused by temporary concerns can be buying opportunities and there are a couple of things investors can do to help themselves.
Share prices
Of course, there’s no denying that the tragic events in the Middle East right now matter much more than what’s going on in the stock market. But we can’t ignore the fact that the conflict has had a significant impact on share prices this week.
Increased tension has sent oil and defence shares up while putting pressure on travel and manufacturing stocks. And the opposite’s happened when things have been calmer.
That’s given investors some real opportunities. Buying shares at discount prices often means waiting for market sentiment to shift, but this has been happening much faster than usual.
Stock market volatility can bring the chance to build a diversified portfolio at speed. But there are a couple of ways for investors to take advantage of the opportunity in front of them.
Screaming value
When share prices fall, cheap stocks become even cheaper. Nike (NYSE:NKE) was already underperforming the S&P 500 this year before inflation fears meant it fell further this week.
The firm’s been working on its strategy after a series of mistakes in trying to go direct to consumers. But continued pressure on consumer spending could delay improvements.
There’s a real chance though, that the stock market’s underestimating the company. Investors are worried about cheap competition from China, but I think this concern’s misplaced.
Lower-priced rivals are nothing new for Nike. But having one of the strongest brands in the world is a very valuable asset for fending off competitors and I expect that to remain the case.
Unusual opportunities
Another strategy is to focus on stocks that aren’t normally cheap at all. And it isn’t that hard to figure out why conflict made InterContinental Hotels Group (LSE:IHG) shares fall.
The FTSE 100 hotel chain has significant assets in Dubai and Saudi Arabia, right on the edge of the conflict zone. So disruption in that part of the world is a big risk for the firm.
Most of the time, the stock market recognises the company as a high-quality operator with a franchise model that makes it highly cash generative. As a result, it’s almost never cheap.
That means investors who want to buy the stock need to be willing to seize opportunities when they present themselves. And that can be when there’s an ongoing geopolitical situation.
Investing strategy
Buying shares when they’re cheap is often a good idea. But there are a couple of ways of trying to make the most of a volatile stock market.
Nike shares have gone from being discounted to trading at some unusually low multiples. And that makes them worth considering at the moment.
With InterContinental Hotels Group, the situation’s different. The stock isn’t trading at a low multiple, but it might be worth a look because buying opportunities on the whole are limited.
Either strategy can be a good one. But the best thing investors can do when the share prices start moving in big ways is to make sure they’re ready with a plan.
