To me, the outlook for UK stocks looks highly uncertain at the moment. But a great opportunity for investors could be on the horizon.
Across the Atlantic, a huge sell-off has already started in the US bond market. The last time this happened was during the dot-com crash.
Stock market crash
Since their peak in May 2020, long-term US government bonds have fallen by around 46%. That’s close to the 49% decline drop that happened when the stock market crashed in 2001.
Lower prices make bonds more attractive to investors. And the opportunity to invest in relatively low-risk assets for 10 years at a 4.7% return is drawing market participants away from shares.
Aside from the ‘Magnificent Seven’, US share prices have been under pressure as a result. And there might be similar consequences for UK stocks.
Between January 2001 and December 2002, the FTSE 100 fell by just under 40%. And the FTSE 250 declined by around 35%.
A similar downturn in the near future could be a great opportunity for investors. It would offer a chance to buy shares in some high-quality businesses at unusually cheap prices.
With that in mind, I think it’s worth thinking now about which UK stocks would be good to buy if prices fall sharply. There are a few on my list.
Stocks I’m watching
One example is Bunzl. The company distributes consumables and packaging for various industries, including food, groceries, and hygiene.
The businesss is growing impressively and has low capital requirements. Over time, this should make for a good return for investors.
Right now, the issue with the stock is that this is reflected in the share price. But in a market sell-off, things might be different.
In the FTSE 250, I’ve got an eye on Games Workshop. The company has terrific intellectual property rights and it uses those very well to generate strong cash returns.
The company also has a very strong balance sheet. While there’s a risk that discretionary spending might slow in a recession, its financial position means it should be able to do well on the other side.
At a price-to-earnings (P/E) ratio of 24, the share price looks expensive to me right now. But if markets were to slip lower, this is a stock I’d be interested in buying for my portfolio.
Opportunities
Shares in companies like Bunzl and Games Workshop almost never trade at bargain prices. There’s a good reason for that – both are quality companies and investors know it.
A stock market crash, though, might be a great opportunity for someone like me to buy stocks that aren’t usually on sale. And the signs from the US bond market are interesting to say the least.
With my own investing, I’m looking to keep buying stocks when they’re good value, rather than waiting for a crash. But I might see some unusual opportunities to do this in the near future.
