Stock market volatility has put both the FTSE 100 and the S&P 500 close to correction territory. And things aren’t over yet.
At times like these, it can pay to be greedy when others are fearful. But where are the opportunities at the moment?
Falling share prices
A lot of FTSE 100 stocks have fallen sharply in the last month or so. But they don’t jump out at me as buying opportunities.
One example is easyJet. The firm’s share price is down 24% in the last month, but I think there are good reasons to be wary.
The business is in a tough industry and I can’t see a lasting competitive advantage. So I don’t want to buy the stock just because it’s cheap.
Another case is Anglo American. I think there’s reason for optimism here, since I can see a positive long-term outlook for copper.
The trouble is, the stock isn’t actually all that cheap. Despite a recent fall, it’s still 13% above where it was trading six months ago.
The stock is cheaper than it was, but looking past the last month doesn’t suggest an unusual opportunity. So where are the bargains?
Flight to quality
Investors are often drawn towards high-quality companies in times of uncertainty. And this is a strategy that makes sense.
Strong competitive positions and relatively reliable cash flows are valuable when things are tough. That’s why these stocks become attractive.
As a result, it’s not necessarily surprising to see Bunzl (LSE:BNZL) shares up 3% in the last month. The FTSE 100, by comparison, is down 7%.
Despite this, a look back at what’s been going on with the stock suggests it might be cheap and worth considering even after its rise. It’s still down 29% from its 52-week high.
There’s a lesson here for investors. Even when things are developing fast, it’s important to keep an eye on the bigger picture.
A volatile stock market creates eye-catching moves. But that doesn’t always mean the situation has changed in a big way.
A unique proposition
It’s been a difficult 12 months for Bunzl. Weak demand in the US has been compounded by the company’s own mistakes.
Looking ahead, the threat of stagflation is a real risk. And that’s what the economic data seems to be indicating right now.
The firm, however, has two major advantages. One is the convenience it offers customers, alongside speed and reliability.
Bunzl offers customers packaging, cleaning, and safety products in one place. That sets it apart in a competitive industry.
A decentralised approach also means economies of scale are supported by local knowledge. And that also makes the firm unique.
Moving away from this has caused problems in the last year. But the company has responded quickly and made moves to reverse this.
More of the same
Big stock market moves are always interesting. And they can provide huge opportunities for investors looking for stocks to buy.
The latest one, though, hasn’t made a big difference to my plans. As I see it, the best value is still where it was before.
I’m open to the idea that something might happen that gives me a reason to change course. But that hasn’t happened yet.
Moving share prices don’t turn average companies into great ones or the other way around. And that’s what ultimately matters.
