A stock market crash. It could happen. At 4,105 today, the FTSE 350 is higher than it was prior to the 2008 financial crisis.
The start of the coronavirus pandemic sparked a mini-crash in March 2020. The Dow Jones suffered a 7.79% fall on 9 March, and then on 10 March, the FTSE 100 lost £125bn in value in just one day.
Markets swiftly recovered and have since risen to record highs. However, across Europe, the UK, and US, central banks have kept interest rates below 1%. Governments have pumped hundreds of billions of pounds in quantitative easing and government support schemes into the financial system. The Bank of England expects inflation to hit 4% this year, and there’s rising concern over the delta variant. I think there’s a chance that the recovery is premature, and we could experience another stock market crash.
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I think these three stocks could help me to weather the storm.
Fast food
McDonald’s (NYSE: MCD) managed to actually make gains in the 2008 crash. This makes sense — in times of economic uncertainty, consumers appreciate the affordability of fast food. The company has been continually innovating. Most branches now have self service tills and offer delivery. Its app has been pushed aggressively, helping to increase cash flow by 12.8% to $6.3bn between 2017 and 2020.
There are downsides though. The share price hit its all-time high of $242 last week, leaving plenty of room to fall. In the wake of the pandemic, new taxes to reduce obesity could hit the fast food sector. In addition, its restaurants have had to increase wages to attract staff due to a significant labour shortage. With thin profit margins, this could hit profitability.
Value shopping
B&M European Value Retail (LSE: BME) is another stock I’d buy if there’s a stock market crash. It anticipates revenue of £4.8bn for FY 2021, an increase of 58.4% compared to FY 2018. The company is benefitting from the rapid growth of discount retailers, including the likes of Primark, Lidl, and Aldi. If there is a stock market crash, I think it’ll benefit from price conscious consumers with diminished disposable income.
It shares a risk with McDonald’s. Its share price is at 555p, only 21p away from a high of 576p. In addition, it has competition from other budget chains like Poundland and Wilko. As many of its products are manufactured abroad, it could be hurt disproportionately by supply chain disruption, and increased transport and warehousing costs.
Stock market crash
British American Tobacco (LSE: BATS) is one of the largest tobacco companies in the world. In the 2008 recession, it lost very little of its value, and its share price now sits at 2,656p. In its earnings report last week, first half revenue increased 8.1% to £12.2bn. It has a significant 8.0% dividend yield, double the FTSE 100 average, though it does have a substantial debt burden.
Tobacco is a declining market, so this giant will soon have to generate profits from diversification. Encouragingly, revenue from new categories increased 50%, due to cannabis and vaping sales. Its competitor, Philip Morris, plans to stop selling cigarettes in the UK within 10 years.
I think it could lose investors on ethical grounds. There’s also a potential ban on menthol cigarettes in the US that could hurt profitability. However, it’s still a stock I’d buy in a stock market crash.
