I recently wrote about some of the potential triggers of a stock market crash, with inflation being one of the big concerns. I concluded that “the best move I can make during a crash is to update my watchlist of the shares I like, set price targets for them and be ready to buy more at a lower price when markets settle down.” This remains the case. With that in mind, these are the three UK shares I’d buy after any crash.
Warren Buffett’s view
In a stock market crash nearly everything goes down indiscriminately as investors panic. So it can create an opportunity to pick up high-quality companies at a cheaper price. As Warren Buffett said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” This is exactly what occurs when there’s a stock market crash. For long-term investors, a crash is ideal. It’s not necessary to time a share buy perfectly, it’s enough just to get a hopefully great, well researched company at a lower price and better valuation.
The UK shares I’d snap up
Two of the three UK shares I’d buy I already hold, Legal & General and Diageo. The former as a financial stock would likely fall more heavily than average in any stock market crash. That would in turn push up the already very high dividend yield. The combination of high yield and recovery potential – on top of it being a great business – would make it a compelling long-term buy for me. Of course, Legal & General’s dividend could be cut if times got very hard for a prolonged period, but most crashes are swift and hopefully the next one will be.
I also rate Diageo very highly for its portfolio of power brands. This is despite the fact that it has relatively high debts. Its big upside is that, in my opinion, it’s a high-quality business, given its high margins and returns on capital.
Strong brands
My third purchase would be Norcros. It’s a construction products company selling showers and other items to housebuilders and retailers in the UK and South Africa. It has strong brands including Triton Showers and a strong distribution network selling its wares to customers. This supports growing revenue and profits, as well as an increasing dividend to investors. This combination of growth and income is appealing.
The shares are already on a P/E of only nine. So if they got cheaper, they’d potentially be too cheap for me to ignore. The thing that might hold back strong share price growth is any hiccups in its turnaround of the South African business. That’s the big thing to watch out for. Also, there could be more competition or an increase in the pension deficit.
A stock market crash could be an opportunity to pick up shares in quality companies like Legal & General, Diageo and Norcros. I’d certainly buy any of them, especially the former and latter as they are already quite cheap.