Warren Buffett has made some of his most lucrative investments during market sell-offs. When prices are coming down, it can be a great opportunity to buy stocks.
When share prices come down, I look to buy stocks that almost never trade at a discount. Two that I’m looking at now are London Stock Exchange Group (LSE:LSEG) and Rightmove (LSE:RMV).
London Stock Exchange Group
The London Stock Exchange Group is a highly efficient business. The company generates just under £1.5bn in operating income using 832m in fixed assets.
Obviously, it owns the London Stock Exchange. But that part of the business only accounts for around 3% of the overall organisation’s sales.
Around 70% of the Group’s revenue comes from its analytics business. This part of the company is built on a huge database that is nearly impossible for competitors to replicate.
The trouble with LSEG stock is that almost never seems to be cheap. Even in a volatile market, the share price is up nearly 8% since the start of the year.
The current share price gives the company a market cap of just over £43bn. It has around £8.37bn in debt and just under £1.4bn in cash.Â
On top of this, the business generates almost £2bn in free cash. This represents an investment return of just under 4%.
For my own portfolio, I’m looking for a slightly better value proposition before I invest. But the London Stock Exchange Group is one of the stocks to buy for my portfolio if its share price comes down.
Rightmove
My second stock to buy in a market sell-off is Rightmove (LSE:RMV). I actually bought Rightmove shares earlier this year, but the stock has now reached a level that I’m not comfortable investing at.
I think that Rightmove is one of the best businesses in the FTSE 100. It has a dominant market position and it generates huge amounts of cash.
As the largest UK property platform, Rightmove benefits from a network effect. As more buyers look at the site, the incentive for sellers to advertise there increases and vice versa.
Rightmove’s size also gives it pricing power. Its unrivaled scale provides sellers with access to an audience they can’t get anywhere else and this affords the company the ability to raise its prices.
The strength of Rightmove’s business is illustrated by its financial metrics. The most obvious is its huge operating margins.
Rightmove maintains operating margins around 74%. This comfortably eclipses Alphabet (30%), Meta Platforms (36%), and Microsoft (43%).
Slowing demand for housing in the UK caused by rising interest rates might well weigh on Rightmove’s profits in the near future. That’s why I’m not buying shares at today’s prices.
Looking forward, however, I’d love to buy more shares at or near the 529p per share mark. So if we see another stock market sell-off, I’ll be looking at buying Rightmove stock.