The 2020 stock market crash this spring saw the FTSE 100 plummet in chaotic scenes. The largest UK shares lost billions in value. Since then, nearly half of all UK listed companies have cut or scrapped their dividends. And markets still feel extremely fragile.
But despite all the panic, fear and uncertainty, there are still UK shares primed to outperform.
Could we see another stock market crash in August? It’s possible.
Stock market crash round 2?
Companies have had to survive tectonic shocks this year. Physical stores were shuttered for months (some still are) and an entire way of doing business has changed for good.
But I believe there is a simple answer to the question of how to protect yourself from another stock market crash.
Personally, I plan to buy resilient, profitable, growing companies. It’s as simple as that.
Kainos
FTSE 250 medical software company Kainos (LSE:KNOS) released another stellar trading update on 27 July 2020.Net cash jumped from £40.8m on 31 March to more than £62m by 24 July, all with no debt.
Profits for the year ending 31 March 2021 would be “substantially ahead of consensus“, the IT provider said.
Even if there is another stock market crash, I see Kainos not just surviving, but thriving.
The Belfast-based business is not a household name. But with growth prospects like these? That could all change.
On the back of this July update, the share price jumped more than 20% from 827p to over 1,000p. That’s a hell of a leap for a company worth £1.16bn. It speaks of growing confidence and support from institutional and private investors alike.
In April in the wake of the stock market crash, Kainos made fast moves to conserve cash. CEO Brendan Mooney stopped the full year dividend even while reporting full-year profits at £23.2m, 10% ahead of the previous year.
Then Mooney and his CFO Richard McCann agreed to take no salary or bonuses for six months, and pushed through a 20% cut in non-exec board pay. These are the kinds of management moves I love to see.
That cancelled final dividend? It’s returning as a one-off 6.7p per share payment. You can buy Kainos shares until the 6 August ex-dividend date and still be eligible. And dividends are returning to normal from now on, Mooney has confirmed.
Avon Rubber
I’ve been banging the drum for Avon Rubber (LSE:AVON) for some time. The reason?
The Wiltshire-based FTSE 250 firm is making money hand over fist. And even if there is another stock market crash, the outlook is very bright.
In July, CEO Paul McDonald sold off the company’s dairy arm Milkrite InterPuls to refocus the business on its strongest growth area. That is, making masks, respiratory gear and defence equipment for military, fire and police services worldwide.
Getting a sale price of £180m means that cash will be available for management to make more acquisitions. The last one was an absolute belter: picking up 3M’s ballistic protection business for £75m. It means Avon has been able to win long-term and highly lucrative government contracts. These will pull in years of revenue and will hopefully keep profits growing.
In a difficult market with a potential stock market crash just around the corner, strongly profitable companies will be your saviour, in my view. They may look expensive on paper, but will boost your wealth by so much more.