Scary Covid-19 case numbers around the world are causing the markets to weaken again. But my guess is we won’t see another sudden stock market crash as we saw in the spring.
However, weakening share prices now could be our chance to have a second bite of the cherry and buy quality stocks at better prices.
Recovery following the stock market crash
On Thursday, the Bank of England (BoE) slipped out a useful report aimed at gauging the state of the economy and how UK businesses are faring. The central bank’s report is the latest in a regular series based on consultation with its 12 regional agents. And the conclusions follow discussions with around 700 businesses across the UK.
Thursday’s publication summarises intelligence gathered between early August and early September. As we might expect, businesses from many sectors reported something of a recovery in trading from the lockdown lows but many are still operating at reduced levels.
However, there are some sectors that have been thriving in the current economic environment. For example, the BoE reckons activity remains strong for companies operating in IT, telecoms, employment law, audit, debt management, corporate restructuring & banking, and insurance. On top of that, firms offering Brexit planning advice reported activity “starting to pick up again.”
One simple way to scour the stock market for potential investment ideas is to look for strength in share prices. I reckon we have a big advantage in the current weak stock market environment because we already know which shares performed well coming out of the spring crash. Indeed, strong stocks can indicate good underlying trading, which we can verify with research.
Quality at fair prices
And I reckon investing in strong businesses can be a decent investment strategy. Billionaire investor Warren Buffett, for example, tends to buy shares in what he calls “wonderful” businesses at a “fair” price. Indeed, he focuses on quality. And he tends to buy shares when they are weak. So that means he’s often out shopping for stocks in times like these. There’s usually plenty to worry about in the economy when he’s hunting, but that’s why he gets his share bargains.
In one example, we’ve seen a strong stock performance from information technology (IT) infrastructure services provider Computacenter. The company has been growing nicely with a resilient operating performance over the past decade or so. I think the share looks interesting now and is worthy of further research. I’d also look at veterinary pharmaceutical operator Dechra Pharmaceuticals.
Meanwhile, toilet rolls, kitchen rolls, and facial tissue manufacturer Accrol has been thriving lately. City analysts have pencilled in a more than 50% increase in earnings for the trading year to April 2022. I think the stock looks attractive. And I’m also keen on communications and information technology firm Spirent Communications.
Meanwhile, in the fast-moving consumer goods space, I’m watching both Premier Foods and PZ Cussons closely. The companies are engaged in different stages of encouraging turnaround strategies.