It didn’t take long for the recent stock market crash to resume. Market mentality remains extremely fragile and it wouldn’t have taken much to vanquish the recent mild recovery across share indices.
As it stands, the motivation for the fresh sell-off is quite a considerable one. A new study from the International Monetary Fund (IMF) suggests that the global economy will shrink 3% in 2020 because of what it has termed the “Great Lockdown.” Such a decline would mark the sharpest decline since the 1930s.
This is quite a departure from the growth of 3.3% the IMF had predicted just three months ago. But this is not all. In a frightful flourish, the organisation said that it only expects a “partial recovery” in 2021. And this is dependent on a steady improvement in the public health crisis.
Still a brilliant buy
I think buying shares in insolvency specialist Begbies Traynor (LSE: BEG) is a sound idea as economic conditions worsen. Times are tough for British business and things threaten to get tougher as the lockdown continues and firms run out of cash.
This is none more so than in the non-essential retail sector. A report by Alvarez & Marsal suggests that 10% of retailers (weighted by revenue) will face liquidity issues within the four months from March 23. Things get really scary if the government-imposed lockdown extends until the end of summer though. In this scenario, the consultancy expects that more than half of retailers could face administration. No wonder retailers are also faring badly during this stock market crash.
Even when surviving companies can fling their doors open to the public once more, tough economic conditions and the subsequent impact on consumer confidence means that their tills are likely to remain pretty silent. That A&M study suggests that sales of discretionary goods and services will plummet 17% in 2020, equating to a mammoth £37bn in lost revenues.
Defying the stock market crash
It’s clear that these are dark days for the entire domestic economy though. That aforementioned IMF report, for example, suggests that the UK economy will shrink an eye-watering 6.5% in 2020, much worse than the global average.
It looks likely, then, that the phones at Begbies Traynor will be ringing off the hook in the months ahead. The company has already experienced an upswing in business activity as Brexit uncertainty has damaged the economy.
No wonder City analysts expect annual earnings to have grown in the mid-teens in the year to April 2020 and to do the same the year after. In fact, these bubbly forecasts will likely be significantly upgraded in the months ahead, I believe. It’s surprising to find that Begbies Traynor trades on a rock-bottom price-to-earnings (P/E) multiple of 13.2 times for the upcoming financial period.
The AIM stock has risen in value since the coronavirus crisis emerged. It surged to a record closing peak of 97p per share this month. And I think it’s likely that new highs will be reached in the very near future as the broader stock market crashes.