The FTSE 100 has again failed to push beyond the 7,500 point mark, turning lower in the past few days. With renewed fears that a meltdown is coming due to raging energy prices, I need to put my thinking cap on. Here are the best UK stocks I’d buy the stock market keeps tumbling in the days ahead.
A winner from the energy crisis
The first area I want to focus on is energy. This is the main reason for the cost-of-living crisis and I don’t think it’s going to change anytime soon. Fortunately, there are some stocks that can perform well with rising energy and commodity prices.
For example, I’d consider commodity trader Glencore. It produces and markets a vast amount of natural resources globally. These include natural gas (the price of which is skyrocketing), as well as more traditional energy forms such as coal and oil.
Given that it has a diversified reach in terms of both product and geographical regions, I think it could perform well for the rest of the year. In fact, it’s already up 14% in the past six months, as commodity prices have risen. Over the past year, Glencore shares are up 53%.
Commodity companies aren’t risk-free. Swings in core product prices are volatile and the share price often reflects this. As governments grapple and try to get supply and demand back to normal levels, logic would suggest that prices of products such as natural gas won’t stay this high forever.
Best UK stocks to take on inflation
Inflation is another key concern for investors that could cause the stock market to nosedive. It doesn’t look like coming under control, with the media reporting last week that one major investment bank thinks it could hit 18%+ early in 2023.
Again, this isn’t positive for many companies, with raw materials costs going higher and profit margins shrinking. Yet some UK stocks won’t be too negatively impacted.
Take HSBC, the global bank with a large operation in the UK. In the latest results, it highlighted a rise o 0.09% in the net interest margin from Q2 2021 to Q2 2022. This might not sound a lot, but with the margin at 1.35%, it’s actually a decent uptick.
This net interest margin hike reflects the increase in base rates from the Bank of England. It means HSBC make a spread of 1.35% between the deposit rate it pays and the rate it charges on loans. I think this is only going to increase further as central banks try to reduce inflation by upping the base rate more and more. In this way, the HSBC share price should rally despite high inflation.
The banking sector isn’t perfect, with any UK recession likely to see more loan defaults. HSBC and others will need to set aside impairments for this, which would detract from profits. But I’d still buy.