As inflation hits 9% in the UK, I’m preparing for the possibility of a stock market crash. I don’t know whether or not there will be one, but I want to make sure I’m ready if it happens.
Part of that preparation involves identifying stocks that I’d like to buy if the markets suddenly drop. With that in mind, here are three UK shares that I would very much like to take a closer look at in the event of a stock market crash.
Criteria
In hunting for shares that I might buy in a stock market crash, I’m looking for three things.
First, I’m looking for businesses that can generate strong cash returns for shareholders, ideally using low property, plant, and equipment.
Second, it’s important to me that a company has a strong balance sheet. For me, a strong balance sheet is one where the company’s cash is higher than its debt.
Lastly, I’m hunting for companies that I think are currently overpriced. A stock market crash, however, might give me an opportunity to buy shares at a level I find attractive.
This leads me towards three stocks.
UK shares I’m buying in a stock market crash
First is Games Workshop. The FTSE 250 company uses around £96m in fixed assets to generate around £148m in operating income.
With £85m in cash and £47m in debt, the company’s balance sheet also fits the bill in terms of what I’m looking for.
The stock is down around 30% since the beginning of the year, but a market cap of £2.34bn is still more than I’m willing to pay for this company at the moment. Rising interest rates are a threat here, since they might cause people to pull back on their spending. But if the share price suddenly falls, I’ll be ready to take a closer look.
Second is FTSE 100 stock Rightmove. I own some of its shares in my portfolio, but the price is significantly higher than it was when I bought them, even though it’s still around 29% lower than it was in January. With the UK property market just starting to slow down, there might be some short-term risk, but I’m looking at this stock for the company’s long-term prospects.
Rightmove currently produces £183m using £12m in property, plant, and equipment. To me, that’s very impressive and a sign of a quality operation.
With just under £43bn in cash and just over £11mn in debt, Rightmove also has the kind of balance sheet that I’m looking for in a business to invest in.
Lastly, a stock that’s been catching my eye is Auto Trader. With just under £46m in cash more than covering £35m in total debt, the company’s balance sheet looks strong to me.
Auto Trader uses £11.2m in fixed assets to return just under £242m in operating income. That makes it the most impressive of the three, from that perspective.
Down 23% since the start of the year, Auto Trader shares are still a little expensive to my mind. But if high inflation and rising interest rates — which constitute genuine risks to Auto Trader’s profit levels — conspire to bring about a stock market crash, I’ll be looking at buying some shares for my portfolio.