It has been a tough week thus far for the FTSE 100 and FTSE 250. With all the carnage going on due to concerns around the stability of global banks, investors have run for cover. Granted, there are legitimate reasons to be concerned, but when the market falls it always presents some opportunities. Here’s one UK stock that I like and one that I’d stay away from.
Support for the property sector
The stock I like is Persimmon (LSE:PSN). It has fallen 14% over the past month and 46% over the past year. I think I’m going to buy it shortly. Some might think I’m crazy for thinking about buying a property share right now.
One reason why I feel I’m sane in my reasoning is due to interest rate expectations. If we rewind a couple of weeks, economists were forecasting more rate hikes from the Bank of England up to 4.5% or even 4.75%. This was keeping mortgage rates high and causing problems for Persimmon.
Due to concerns around financial stability, this has now gone completely out of the window. There’s a strong argument for no further rate increases until the regulators are happy that the banks are in a solid position. If this happens, I think Persimmon could benefit as mortgage rates move lower to reflect this change in expectations.
In fact, yesterday when the FTSE 100 was in the red, Persimmon was one of the best-performing stocks in the index. I think this shows that others share my viewpoint on this.
Of course, there are still broader concerns about the property market in the UK. Persimmon has already tempered expectations of revenue and profit for the year ahead. This is a risk, but I’d argue that this sentiment is reflected in the current share price.
Concerns for smaller banks
On the other hand, I’m steering clear of the Bank of Georgia (LSE:BGEO). To be clear, I’m not bearish on all banking stocks, but I’m worried about the smaller business such as this one.
To put the size into perspective, the current market cap is £1.21bn. This contrasts to HSBC, with a market cap of £109bn.
As we saw with Silicon Valley Bank, smaller institutions are coming under a lot of pressure as depositors are worried about how secure they are. Outflows are heading to larger banks that people deem are safer.
Therefore, I expect the Bank of Georgia to see outflows of money to larger banks in the near future. It’s not that I think it’ll go bust tomorrow, but rather I feel investor sentiment is to steer clear of small banks right now.
Over the past week the share price is down almost 12%. Even though it has doubled in value over the past year, I still don’t feel comfortable owning the stock any time soon.
To be a good investor, knowing what not to buy is as important as picking what to invest in!
