1 FTSE 250 stock I’d love to snap up in the next stock market crash

Jon Smith reveals a FTSE 250 share on his watchlist that he thinks is a little overvalued right now but would be on his radar if the market fell.

| More on:
Chalkboard representation of risk versus reward on a pair of scales

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Over the past week, stock markets around the world have jumped as the spill over from the US election result is felt. The FTSE 250 index is up 8% so far this year, with some individual constituents up significantly more. Yet there’s one stock that I feel I’ve missed the boat on which I have on my watchlist if we get a significant correction.

Incredible gains

I’m referring to CMC Markets (LSE:CMCX). The financial trading and investing platform has risen by a whopping 232% over the past year. The growth has been at a frantic pace, but the stock is currently too high for me to justify buying. Even from a valuation perspective, it looks stretched. For example, the price-to-earnings ratio stands at 19.34, almost double the fair value benchmark of 10 that I use.

Yet even though I’m not buying right now, any kind of sharp correction would see me step in. One of the main reasons why I like the stock is due to the way it makes money. CMC generates fees from trading activities. Put another way, the more that users buy and sell different assets, the more money it makes. So ideally, CMC wants to see volatile markets, enabling more opportunities for clients to trade and invest.

Over the coming year, I think we’ll see such volatile markets. This relates to the start of the Trump presidency, a likely election in Q1 in Germany, persistent economic problems here in the UK and much more. I haven’t even started to talk about the surge in interest being seen in crypto (which CMC offers)!

The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

A potential market wobble

Some of this volatility might result in a stock market crash, which serves my purpose well in hopefully being able to buy the stock cheaper than current. I think that we could see a crash based on a couple of catalysts.

One is the potential for escalating trade wars from the US and China. This could spook investors and cause stocks to tumble lower.

Alternatively, it could be triggered by continued escalation in the Middle East. Given the impact this would likely have on oil, gold and other assets, stocks related to these commodities could be in for a rough ride.

Weighing it up

There are some risks to my view. One is that we might never see the CMC share price tumble. So if I’m correct and the business does well and generates higher profits from client activity, I could miss the boat completely.

Another risk relates to the business. In a recent update, it spoke about how it’s planning to offer more products, including Cash ISAs in the UK. I’m not sure that this is a good idea, as there are plenty of existing providers of ISAs. I don’t think CMC has a unique selling point in this area. As it continues to grow, it needs to select where it wants to focus on wisely.

Even with those risks, it’s definitely a stock I’m keeping on my watchlist.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith 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.

More on Growth Shares

British Isles on nautical map
Investing Articles

Should I buy more BAE Systems shares at 1,350p?

BAE Systems shares have had a fantastic run since early 2022, yet still don't appear overvalued. Is it now time…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Down 38% in weeks! Time to snap up NIO stock?

NIO stock's more than doubled in value over the past five years but has been on a wild ride lately.…

Read more »

Investing Articles

Should I put money into index funds now the FTSE All-Share has paused?

The FTSE All-Share index has been treading water since May. Is it smart to put money into tracker funds now…

Read more »

Investing Articles

What are Rolls-Royce shares really worth?

Our writer thinks Rolls-Royce shares might be undervalued even after a staggering price increase. But he also sees reasons to…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

This FTSE 250 company just released impressive results, overshadowed by a dire political situation

Our writer takes a look into an under-the-radar FTSE 250 stock that may have a lot of potential if it…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Still under £4 despite strong recent results, is this FTSE retailer too big a bargain to pass up?

This FTSE stock looks set for strong earnings growth, which should drive its share price and dividend higher in my…

Read more »

Investing Articles

2 top shares I’ve bought for my Stocks and Shares ISA in November

This writer reveals a pair of fast-growing businesses that he's recently added to his Stocks and Shares ISA for the…

Read more »

The flag of the United States of America flying in front of the Capitol building
Growth Shares

2 FTSE 100 stocks that could soar while Donald Trump is US President

These two FTSE 100 companies have a lot of exposure to North America. So, they stand to benefit from a…

Read more »