The stock market crash has left a lot of investors unsure of which way to turn. The worst of the washout might be over, sure. But market volatility remains and isn’t providing a helpful guide for share pickers to decide what to do.
Nerves are frayed following the Covid-19 outbreak and the unprecedented harm that it’s doing to the global economy. Trading conditions look set to remain difficult for the foreseeable future, too. Infection rates continue to rise in certain parts of the globe, and lawmakers rush to throttle a second wave of the pandemic in others. The macroeconomic and geopolitical consequences of the outbreak threaten to be prolonged and far reaching, meanwhile.
Be like Buffett
It’s important to consider what the most successful share investors do in times of crisis like this. You’ll find that instead of going into their shells to try and wait things out, or selling everything in fear of another market crash, they go on the offensive.
People like Warren Buffett don’t make their fortunes by sitting on the sidelines. One of the so-called Oracle of Omaha’s most famous principles is to “be fearful when others are greedy, and greedy when others are fearful”. He doesn’t always get it right, of course, as his disastrous purchase of Tesco shares half a decade ago shows. But he didn’t become the world’s fourth-richest man (or so says Forbes) without knowing what he’s talking about.
Don’t fear the market crash
It’s clear by now that the coronavirus crisis will create many, many corporate casualties. The profits outlooks for many UK-listed companies have been blown to smithereens. Those firms whose earnings pictures remain quite bright may well run out of cash before realising their full potential.
There are, however, a great many stocks with the balance sheet strength to ride out the Covid-19 saga, and who retain a bright long-term growth outlook, that have been massively oversold during the stock market crash. A large number of these consequently trade at rock-bottom prices that appear too good to be true.
One only has to look at the valuations of some true FTSE 100 royalty to see evidence of this.
Take BAE Systems for example. The Footsie stalwart is Europe’s third-largest aerospace and defence company, and is therefore in prime position to benefit from rising weapons spending over this decade and beyond. Yet it trades on a forward price-to-earnings (P/E) ratio of just 11 times and carries a near-5% dividend yield to boot.
Or consider SSE for a second. This is a blue chip utility whose defensive operations should not only protect it against the worst of this financial downturn. It’s a company whose rising focus on renewable energy makes it a key player in an increasingly low-carbon economy. Right now it carries a P/E ratio of just 14 times on top of a mighty 6.5% dividend yield.
There are acres of brilliant blue chips that have been grossly oversold during the recent market crash, in fact. And this gives sharp-eyed investors a wealth of opportunity to go out there and make a fortune.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.