There’s a lot of talk about a second stock market crash and how investors can prepare for it. Our broad view at The Motley Fool is a fresh market crash isn’t something investors need to be terrified of. In fact, for share pickers who buy stocks with a view to holding them for many years, our Foolish view is that another collapse could provide another top dip-buying opportunity.
The global Covid-19 count continues to rise and rumours gathering pace that more mass lockdowns could be in the offing. No wonder fears of a second stock market crash are rising. Such a scenario would threaten to choke off any sort of global recovery.
But what if we manage to avoid another market crash? Countries, driven by fear of a colossal economic meltdown, remain determined to lift quarantine restrictions. It could be argued that the global economy still remains on course for a V-shaped recovery.
Forget about another market crash for a second…
Of course, investors should prepare for the worst by owning some shares with exceptionally-strong balance sheets, economic moats that give them an advantage over their competitors, and non-cyclical (or even counter-cyclical) operations that should allow profits to keep rising in case of a macroeconomic meltdown.
However, investors should also keep a close eye on news flow and be prepared to buy some classic ‘early cycle’ shares, i.e. those cyclicals that are the first to rise when economic conditions improve. A second stock market crash isn’t the only scenario that could provide a brilliant buying opportunity for investors. By acting swiftly and buying early cycle stocks early you can really supercharge your total long-term returns.
Some top UK shares
Any V-shaped recovery would boost consumer confidence and their buying power. As a consequence, acquiring shares in manufacturers of consumer and leisure goods could be a good idea. And, by extension, investing in general retailers might be a stellar plan too.
UK investors have a world of opportunity here. From electricals retailer AO World and home furnishings seller Dunelm Group, right through to greetings specialist Card Factory, clothing giant Next, and alcohol retailer Naked Wines, there’s a galaxy of UK shares that could ride this trend.
Travel and leisure stocks would also benefit from citizens having more money in their pockets. Profits over at easyJet and IAG, cruise operator Carnival, and package holidays giant TUI Travel (to name just a few) have been crushed by Covid-19-related lockdowns. But holiday bookings are surging as nations reopen their borders again, illustrating the strength of pent-up demand. And holiday sales could continue rocketing for the rest of 2020 at least too.
Finally, studies show that life insurance companies also rise in the early stages of an economic recovery. Demand for general insurance products for the home, for the car, for the pets and so forth, is more resilient in tough times, sure. And this could make them wise buys in anticipation of another stock market crash.
Still, buying shares in RSA Insurance and Prudential on expectations of a V-shaped recovery could also prove a wise idea right now.
Royston Wild owns shares of Prudential. The Motley Fool UK owns shares of Card Factory and Next. The Motley Fool UK has recommended Carnival and Prudential. 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.