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It’s always tempting to wait for a stock market crash before going shopping for shares, as that’s a brilliant time to pick up bargains. There are several problems with this strategy though.
First, nobody can predict a stock market crash. Investors who hang around waiting for one may find their money sitting on the sidelines for a long time. In the meantime, shares could become more expensive, plus they’ll miss out on a heap of dividends.
Buying shares in a crash isn’t as easy as it seems either. It takes nerve to buy when everyone else seems to be selling. Plus there’s always the temptation to wait to see if the market falls that little bit more, only for it to rebound. Buying at the bottom of the market is just as tricky as selling at the top.
Time to dive in
And why wait – when the FTSE 100 is full of bargain stocks today? I’m tempted by sustainable paper and packaging specialist DS Smith (LSE: SMDS), which currently trades at just 6.2 times earnings.
It’s cheap for a reason, as the shares have crashed 25% over two years and are down 5% over 12 months. That’s due to the cost-of-living crisis, hitting e-commerce deliveries which, as anyone who has opened an Amazon order knows, eat cardboard. At the same time, inflation has driven up the company’s costs.
Personally, I’m feeling optimistic about the year ahead, as interest rates have peaked and could start falling sooner than the Bank of England reckons. Wage growth has kept up with inflation lately, which may also help.
Last month, DS Smith reported that first-half corrugated box volumes remained below last year but it expected an improvement in the second half, despite today’s “weak” macro-economic environment.
While we wait for an economic revival, investors can enjoy the dividend. The stock currently yields 6.2%, covered 2.4 times by earnings. I’d consider buying DS Smith today but already have exposure to the sector via Smurfit Kappa Group (also cheap, by the way).
Fun with financials
Barclays (LSE: BARC) is even cheaper, trading at just 4.6 times earnings, having crashed 27.03% over two years and 8.85% over 12 months. Again, the only thing stopping me from snapping up the stock today is that I have plentiful exposure to the sector via my stake in rival Lloyds Banking Group.
The FTSE 100 banks have also been hit by today’s ‘weak’ conditions. Rising interest rates may have helped them widen their margins, but that positive impact may have run its course as rates appear to have peaked.
On the plus side, lower borrowing costs should ease the pressure on the housing market, preventing a full-blown crash, and maybe stir stock markets into life too. However, I expect the recovery to be bumpy. There is a risk we may get a recession first, and Barclays shares may fall even further.
For compensation, the yield is a handsome 5.1%, covered a whopping 4.8 times earnings. It’s forecast to hit 6% next year, still with cover of 3.6.
Both these stocks are cheap enough to justify a bargain hunt today. Even if the recovery takes time, those reinvested dividends will keep things ticking over nicely. Who needs a stock market crash when there are bargains like these two out there today?