If there’s one thing that we’ve come to learn about a market crash, it’s that most shares do eventually bounce back. That’s worth remembering if (and that’s a sizeable ‘if‘) we do end up being confined to our homes for the second time in 2020 and prices lurch downwards. When that recovery comes, it’ll pay to already be invested in great stocks. Here are three suggestions.
Thanks to the demand for new companions (particularly puppies) during the first lockdown, I continue to be bullish on pet product retailer Pets at Home (LSE: PETS). The fact that owners won’t be prepared to cut back on spending means that even a prolonged recession is unlikely to impact the industry too heavily. This is assuming most manage to keep their jobs, of course.
Now, some of this is clearly already priced-in. After all, Pets at Home has more than doubled in value since March thanks to strong trading. That said, there’s no guarantee it won’t fall along with everything else in the event of a second lockdown being announced. In such a scenario, panicked investors tend to sell what they can, not what they should. Pets at Home is a liquid FTSE 250 stock, hence it may be thrown out with the bathwater.
If so, I think this would be a great opportunity. As we often say at Fool UK, a market crash should be embraced by patient investors, not feared. For me, Pets is a solid hold for the long term.
Another share worth buying on any lockdown-related sell-off, in my opinion, is game developer Codemasters (LSE: CDM).
Not that a second stay-at-home order is really necessary for Codemasters and other developers to continue thriving. Gaming is already a multi-billion dollar industry. Perfectly-timed for Christmas, the forthcoming release of the PlayStation 5 and XBox Series X/S in November will only serve to further increase its popularity.
Like Pets at Home, shares in Codemasters have already doubled in value in the seven months since the market crash. However, I think they could go even higher. Trading has “remained strong” during the first half of the year, partly due to the rise in digital sales thanks to Covid-19. The launch of games such as F1 2020 and Fast & Furious Crossroads also helped. Another title — DIRT 5 — will be released next month.
With no debt and almost £50m net cash on its balance sheet, Codemasters also looks financially bulletproof. It’s an easy ‘buy’ for me.
Hitting a high note
The first national lockdown played right into the hands of online musical instrument seller Gear4music (LSE:G4M). I can see this happening again if another series of restrictions are announced.
Again, some of this is already reflected in the £130m valuation slapped on the York-based business. Since March’s market crash, the shares have soared roughly 300% in value!
Even if a lockdown wasn’t announced in the next few days/weeks, the company is likely to see a flood of orders come in for Christmas. Its pureplay status also allows Gear4music to avoid the high fixed costs that come from having a high street presence.
The small-cap is due to announce interim results on 17 November. There’s no telling where the share price will be by then, but I continue to think the business will go from strength to strength.
Paul Summers 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.