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What stock should I buy during a market crash?

Many potential investors and long-term shareholders alike have been asking whether there will be a stock market crash in 2020.

This is an open-ended question and one that I don’t have the answer to, but I can understand why it’s being asked. Going by the global headlines we’re bombarded with on a minute-by-minute basis, the world doesn’t seem a very happy place just now.

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Political turmoil, coronavirus, Australian bushfires and devastating storms. With so much doom and gloom, it’s no wonder fears of a market crash or impending recession are on the rise.

To be prepared is to be forearmed, so if you keep some cash reserves available, you can make the best of a bad situation if a market crash happens in 2020.

Rich pickings

If I was to buy stocks during a market crash, what would I be looking for? Firstly, I’d look to invest in companies that can withstand the turmoil: long-standing companies with a solid history, such as those found in the FTSE 100. I’d also look for shares paying reliable dividends and a reasonable price-to-earnings (P/E) ratio, ideally below 15.

Billionaire Warren Buffett is one of the world’s most successful investors and he takes full advantage of a market downturn to top-up his equity holdings. One of his tips I’d follow is to diversify your holdings. This means buying a mixture of equities from different sectors.  

Supermarket favourite

Tesco (LSE:TSCO), has emerged from a few tough years to be stronger than ever. It’s still king of data, with its Clubcard loyalty card database full of customer secrets.

The marketing power of Big Data is well-known, and Tesco has taken full advantage of it. It pioneered the way to gather customer data and use it to benefit both the retailer and its consumer base by tracking shopping habits. We have witnessed this recently as it targets consumers with encouraging ways to eat more healthily and embrace a flexitarian lifestyle.

The Tesco Clubcard scheme now has over 19m members and it’s recently launched Clubcard Plus, which requires a monthly subscription payment of £7.99, claiming it can save savvy shoppers up to £400 a year.

Tesco has a P/E of 19, earnings per share are 13p and its dividend yield is over 2.5%.

This P/E is higher than I’d like, but this happens when a stock is particularly favoured. A market crash often brings the value of a stock down and with it, the price-to-earnings ratio, so keeping an eye on this metric can be a good indicator of whether you’ve found a bargain buy.

The Tesco share price outperformed the FTSE 100 in 2019. Even during a downturn, people still need groceries, so I think it’s a company that’s likely to weather the storm.

Opportunities galore

Looking back to the past, old stock market crashes look like opportunities. While looking forward, future stock market crashes look like risks. This is an important piece of wisdom to remember when looking for stocks to buy during a market crash.

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.