Is there a new crash coming? Will FTSE 100 stocks slump again?

There are signs that US stocks could be overvalued, with the S&P on a price-to-earnings (P/E) ratio of more than twice the Footsie.

But even if FTSE 100 stocks are cheap, they might still wobble in the event of a US correction.

So what’s the best way to look for UK stocks with defensive traits?

Stocks still down

Why not buy those that fell the hardest in the last stock market crash? That might sound crazy. I mean, won’t they be the first to suffer from a new downturn?

Well, financial stocks haven’t really recovered from the last crash yet. And I see a lot of very attractive valuations.

Which has the greater crash risk next time? Is it Rolls-Royce Holdings, whose shares have doubled in 2023 and now stand on a forecast P/E of 25?

Insurance risk

Or maybe Legal & General (LSE: LGEN), still down this year and with a P/E of 11? Oh, and forecasts show a drop to under nine in 2024. The City thinks the insurance firm will deliver a dividend yield of 8.9% too, and rising.

It might be no surprise to learn that Legal & General is one of my top picks for resilience in the face of any new stock market falls.

Well, I say that. But it’s also among my favourite stocks for a long stock market bull run, if we have one of those instead.

Cyclical benefit

The insurance and investment business really can be a cyclical one. Stocks in the sector tend to overshoot when markets are rising. And when there’s a crisis, I think it’s where we see some of the best cheap buys.

The trick is to invest for the long term, and ignore the short-term ups and downs. That helps us deal with the risk.

And there is risk here, for sure. If high inflation and interest rates go on for much longer, we could see more weakness. And a general market decline would not help the investing business.

Investment manager

The same risks apply to my next pick too, M&G (LSE: MNG).

The retail savings and investment business suffered from a cash outflow when the pandemic crash happened and people withdrew money.

But we’re looking at a forecast 10% dividend yield right now. And while big yields like that are often too good to be true, I like this one.

A loss recorded in 2022 might put folks off a bit. But that was mainly down to an accounting move to IFRS standards.

Keep paying?

But with full-year results, the board said: “Importantly, our dividend payment capacity is linked to the value of available capital in our subsidiaries which is strong.“

And the dividend is what it’s all about for me. Forecasts, in fact, show it rising in the next two years.

Both these FTSE 100 stocks could see further volatility in the next year or so. But I think they could both be good defensive buys for long-term investors.

The post 2 cheap FTSE 100 stocks to buy for the next stock market crash? appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.