After a newsworthy decline of around 7%, the FTSE 100 seems to have stabilised. But, I am not ruling out more bad performance. I think a stock market crash in 2023 is a real possibility. As it stands, the inflation rate in the UK is 10.1%. To inch it towards its target of 2%, the Bank of England (BoE) has been raising interest rates. The bank rate is currently 4%. It has not been that high since 2008. Raise it too high too fast and economic growth stalls.
It’s not just the BoE. Central banks around the world are juggling rates, inflation, and growth. The big concern over the coming months is that economies could slip into recession. The shocks reverberating through the banking sector after the collapse of Silicon Valley Bank add to the risk.
Stock market crash opportunity
Rather than breaking out in a cold sweat at the thought of a stock market crash, I could see it as an opportunity. There are a number of UK stocks that I really like. However, they are not cheap. If the market starts tumbling then it should drag their prices down. So long as their business is relatively unaffected, I can buy stock in these companies cheaply.
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For example, YouGov (LSE: YOU) makes its money by conducting polls and surveys to answer questions that businesses pay to have answered. It has been growing its revenues at 16% per year on average. Its free cash flow has increased every year. And shareholders, like myself, should be happy with a 14.4% return on equity, and dividend growth of 29%.
But, YouGov stock trades at 23 times earnings. That is high. Its dividend yield is somewhere around 1%, which is low. Although as a shareholder I am not keen to see the price of this stock drop, if it did, that yield would increase. I would be tempted to add to my long-standing position in YouGov at a lower price.
Potential bargain stocks
Fevertree Drinks is a growing company I like the look of. The maker of premium mixers for alcoholic drinks has impressive dividend growth, but again the dividend yield on its stock is forecasted to be around 1.5% next year. It trades at a forward price-to-earnings (P/E) ratio of 53. That is shockingly high.
This is a low-yield expensive stock. Add to that a steady contraction in its operating margins and I am not interested. However, if a stock market crash wiped a chunk of its share price, and assuming the underlying business looked okay, I would be very interested in adding it to my Stocks and Shares ISA.
Experian owns a tough-to-replicate database of consumer and business credit information that banks and lenders pay to access. Experian’s revenue grew at a solid 8% per year on average over the last five years. Its operating margins averaged an impressive 23% over the same time frame. But again, the yield is low and the P/E ratio is high. A lower price would correct all that. Assuming the business looked healthy I would consider adding to my position at Experian which I established in April 2020, after the last stock market crash. So if something similar happens again, I will be looking for bargains rather than panicking.
