Since the market crashed back in March, global stocks have risen sharply amid bleak economic conditions and a raging global pandemic. As such, it’s not difficult to see why fears are circulating over a second major sell-off.
To illustrate, the FTSE 100 has added 21% to its value, while its American counterpart, the S&P 500, is only a fraction away from reaching a new all-time high.
A second stock market crash is inevitable
To me, these bloated valuations, especially in the US, seem unrealistic. Especially when factoring in the poor economic data we’ve seen over recent weeks. For example, US GDP shrank by a staggering 32.9% in the second quarter of 2020. Likewise, UK GDP shrank by 19.1% in the three months to May. Granted, the stock market isn’t the economy, but it certainly makes sense for sky-high asset prices to be backed up by favourable economic conditions.
And of course, financial markets are notoriously forward looking. Nevertheless, many shares look priced for perfection, in my opinion, something which may not be reflective of the reality. After all, rising US-China tensions and another wave of coronavirus infections are both risks that could disrupt markets once again.
In any case, another stock market crash is inevitable. It may not come in the next few weeks or months, but another will come. Throughout history, asset bubbles have burst, usually after share prices are too high. However, temporary market downswings are nothing for long-term investors to worry about. In fact, they’re often an ideal time to load up on cheap shares, provided you’re willing to hold them for the long run.
A top UK share I think will hold up well
When it comes to preparing for a market downturn, picking the right shares is vital. For me, that involves focusing on quality companies that display business resilience. Such companies often continue to thrive, even in spite of poor trading conditions.
Consumer goods giant Unilever (LSE: ULVR) immediately springs to my mind. The company is now the largest in the FTSE 100 by market capitalisation, illustrating the major shake up the index has undergone in the aftermath of the sell-off. In my view, it’s clear to see why. Unilever’s products are used by one third of the world’s population and include a multitude of household brands.
The company’s market-leading position as a producer of hygiene products has been pivotal in the firm’s success over the period of the pandemic. While other companies have struggled under the weight of shrinking sales, Unilever reported just a 0.3% decrease, prompting an 8% share price surge on the day.
What’s more, I think Unilever shares offer the perfect blend of both income and growth potential. With a bulky yield of 3%, investors can expect sweet pay-outs that are about as safe as they come. On top of this, opportunities for further growth still exist. The company is planning to ditch the dual UK-Dutch corporate structure and pursue a single listing on the London Stock Exchange. This will massively simplify the firm’s legal structure, enabling operations to become more efficient.
All this comes at cost though, as the shares trade with a P/E ratio of around 19.7. That said, considering the prospects for healthy dividend payments and share price appreciation, I reckon it’s a price well worth paying for those willing to hold for the long term.
Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever. 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.