A stock market crash is often a good opportunity to buy quality stocks at cut-down prices. If you’ve got £10k to invest today, then I think you’re in a great position to build a strong portfolio. Today I want to share my tips on how to invest this cash in quality growth stocks.
Specialist engineering
FTSE 250 engineer IMI (LSE: IMI) may not be a name you’re familiar with. IMI specialises in fluid engineering – controlling the movements of fluids within larger systems. Areas where the company is active include medicine, automotive engineering, and heating and cooling systems.
A surge in demand for ventilators helped the group deliver a strong performance during the first half of 2020. IMI’s pre-tax profit rose by 1% to £94m during the six months to 30 June, despite a 5% reduction in sales.
Debt levels look very comfortable to me and IMI has a decent dividend history. However, the company has opted to reduce its payout in order to support future growth. I think this makes sense. IMI’s results suggest to me that the company is able to invest its own cash in areas that will generate attractive returns.
The shares look fairly priced to me, on 17 times forecast earnings, with a yield of 2.3%. But I think this could be an excellent buy-and-hold stock.
How to invest if you’re worried about another crash
Stock market conditions remain very uncertain, in my view. If you’re unsure how to invest in these difficult circumstances, one option is to hedge your portfolio. Rather than doing something clever (and risky) with derivatives, my approach is to own shares in IG Group Holdings (LSE: IGG).
FTSE 250 firm IG is the UK’s largest online financial trading business. Clients can place leveraged bets on the movement of a huge range of financial securities. When markets get volatile – as we saw in March and April – IG enjoys a sharp rising in trading activity.
IG’s pre-tax profit rose by a staggering 52% to £295.9m during the 12 months to 31 May. This lifted the group’s operating profit margin to nearly 45%.
Although profits are expected to be lower this year, IG has always been a highly profitable business. With the stock trading on 15 times forecast earnings and offering a yield of 5.9%, I think the shares are still priced to buy.
Buy and forget
Utility shares used to be boring and reliable. I’m not sure if this is still true, but one company that has lived up to this promise is Telecom Plus (LSE: TEP).
This group trades as Utility Warehouse and is essentially a reseller, offering its members utility services, broadband, mobile, and other home services under one bill.
Telecom Plus’s selling points for customers are value and simplicity. The group markets by word-of-mouth and a small army of self-employed agents. It’s a system that seems to work well, perhaps helped by the fact that founder Charles Wigoder still chairs the company and controls 17% of its shares.
Although the stock currently looks fully-priced on around 22 times forecast earnings, cash generation is strong, and the shares offer a forecast dividend yield of 4.2%. The payout has not been cut since 2005, suggesting that this is a fairly reliable payout.
I see long-term growth and income potential in Telecom Plus and rate the stock as a long-term buy.
