A downturn in the stock market can be a great time to buy stocks. Specifically, it can be an opportunity for investors to pick up shares that don’t usually trade at attractive prices.
Share prices have clearly been falling – the FTSE 100 is down nearly 9% over the last six months. So which stocks are approaching buying territory?
InterContinental Hotels Group
Top of my list of stocks to buy is InterContinental Hotels Group (LSE:IHG). The stock isn’t an obvious bargain at the moment, but in a stock market sell-off, it might well be worth a look.
As a hotel chain, there’s a risk that a recession might weigh on travel demand and damage short-term earnings. But I think the company’s business model goes some way towards offsetting this risk.
InterContinental Hotels doesn’t own the physical buildings that its hotels operate from. Instead, it recruits owners into its group and offers its branding and network in exchange for a cut of the hotel’s revenues.
This is important. While the company’s revenues might drop in a downturn, it doesn’t have to worry about meeting costs associated with maintenance, energy, and staffing.
As a result, the business has impressive margins, cash conversion, and returns on invested capital. In addition to a dividend, the company uses share buybacks to boost the value of its stock.
At a price-to-earnings (P/E) ratio of 21, the stock commands a premium valuation. It’s just a little expensive for me at the moment, but if share price falls, I think it could be a great addition to my portfolio.
Experian
With the market headings downwards, I’m keeping a close eye on Experian (LSE:EXPN). The stock trades at a P/E ratio of 41, which is quite demanding, but I don’t see another FTSE 100 stock like it.
The most impressive thing about Experian’s business is its competitive position. It’s extremely difficult to disrupt, giving it a relatively predictable stream of future earnings.
Barriers to entry for competitors are high due to the company’s huge database that would be almost impossible for a new entrant to replicate. This puts the business in a strong position.
Within its industry, Experian has Equifax and Transunion for company. But lenders generally see these as complimentary sources of information, rather than alternatives to one another.
This is partly due to the fact that the cost of a credit report is typically a tiny fraction of the loan a bank might be making. As such, other incumbents in the space look unlikely to eat into Experian’s business.
With debt becoming more expensive, there’s a risk that demand for credit scores might decline in the near future. But over the long term, I think it will be a great stock for an investor who can get it at a good price.
UK stocks
The macroeconomic environment in the UK is a tough one at the moment. Higher wages are fuelling inflation, which is causing wages to rise – and the cycle continues.
This is challenging for share prices. But I think a stock market sell-off could offer some great opportunities for investors looking for FTSE 100 stocks to buy.
