A stock market crash can happen at any time. Looking ahead into 2022 and the Omicron strain of Covid poses a risk to stock markets. Michael Burry of ‘The Big Short’ also says there’s more speculation and overvaluation today than at other times when markets crashed.
I have to understand these risks as an investor. But a stock market crash may also be an opportune time to buy shares that have become cheaper.
With this in mind, here are two high-quality stocks I’d buy if a crash does happen.
A UK stock to buy
The first company I’d look to buy is Future (LSE: FUTR). It’s a digital publisher focused on areas such as games, film and technology. The company owns brands such as PC Gamer and Digital Camera, among others.
The share price has had a stellar run over the past 12 months as it’s surged 111% as I write today. Looking back even further and the share price was around 100p in 2016, compared to 3,698p now. This is an incredible return, so I question whether this can continue.
But if a stock market crash happens, I may be able to pick up some Future shares at a cheaper price. The stock fell significantly during the first Covid-related sell-off in March 2020, after all. However, as the company is an online media publisher, another lockdown should not impact the business. In fact, revenue increased by 53% in the company’s fiscal year 2020 (the 12 months to September 2020), and a further 79% in fiscal year 2021. Not only this, but Future has been able to steadily increase its operating margin over recent years. This says to me that the profitability of the company should remain high going forward.
There are certainly risks to consider, regardless of whether the shares become cheaper in a stock market crash. For example, Future is highly acquisitive. Any new acquisition will have to be integrated well to ensure business continuity.
A US stock to buy
The next stock I’d consider buying is Microsoft (NASDAQ: MSFT). It’s a member of the Big Tech group of companies in the US. I’m sure most people will have heard about Microsoft today as its software is used throughout homes and workplaces. The company has also been growing its cloud computing service, Microsoft Azure, which I view as an exciting prospect today.
I think this is a quality company, and it shows the characteristics I look for when buying shares. It achieves sky-high operating margins, and double-digit returns on its capital. Microsoft also generates significant levels of free cash flow, which is the cash left over after capital expenditures. This leaves room for the company to increase the dividend, or buy back its shares, which is great to see as a potential shareholder.
The reason I’d look to buy the shares in a stock market crash is due to the current valuation. The forward price-to-earnings (P/E) ratio is over 36 as I write today. This is quite high in my view. But if the shares became cheaper I’d snap them up for my portfolio.
I’d have to keep in mind that Big Tech companies are vulnerable to greater levels of regulation. This is a growing risk in the US right now and may impact Microsoft’s business going forward.
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Dan Appleby has no position in any of the shares mentioned. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Microsoft. 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.