The UK market is in correction territory (a drop of over 10% in short order) with the blue-chip index — the FTSE 100 — falling around 12% from its peak. It’s not a stock market crash (down 20% or more). However, US stocks have come much closer to a crash, with the S&P 500 nearing a bear market earlier in the week.
These are scary events. With some investors seeing thousands wiped off their portfolio in a matter of days, it can be hard to stay positive. However, this kind of volatility can also create rare openings.
When quality companies are sold off indiscriminately alongside weaker names, it gives long-term investors the chance to buy some of their favourite stocks at knockdown prices. In these moments, fundamentals often take a backseat to fear. And that’s precisely when opportunity strikes. The ability to distinguish between temporary noise and lasting value becomes critical.
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Staying calm during these downturns isn’t easy, but history consistently rewards those who do. For those with a clear strategy and the patience to act when others are panicking, these turbulent periods can lay the groundwork for some of the best long-term returns. As Warren Buffett says “be fearful when others are greedy, and greedy when others are fearful”.
What’s on my watchlist?
During these events, it’s always useful to have a watchlist. This allows me to keep a close eye on stocks I may be interested in buying or adding more of to my portfolio. So, what’s on my watchlist?
Well, let’s start with companies with a strong economic moat — this is a a distinct advantage a company has, allowing it to protect its market share and profitability. These are Arm Holdings, the British chip designer, ASML, the lithography machine producer, and Ferrari, the luxury car brand with sky-high margins and brand value. These companies have strong profit margins that also make them more resilient in times of economic distress. Ferrari’s drop has been modest, but Arm and ASML are down 50% and 40% from their peaks, respectively.
Two I’ve bought
I’m also taken the chance to buy two stocks on my watchlist. The first is Alphabet. The Google parent company is trading with a price-to-earnings-to-growth (PEG) ratio of 1.1, which puts it at a huge discount to its information technology peers.
I’ve also topped up my position in Jet2 (LSE:JET2). The UK no.1 tour operator is actually sitting on shed loads of cash. With £2.3bn in net cash, and a market cap of £2.7bn, the market is valuing the business at just £400m — that’s equal to the company’s projected net income for 2025.
Unlike ASML and Ferrari, Jet2’s margins are much thinner. And this makes its more vulnerable to economic downturns. And yes, higher minimum wages and National Insurance contributions will increase costs by as much as £25m.
However, the net cash position provides something of a backstop for the share price, and jet fuel prices have fallen significantly. The latter should provide a major boost. Spot prices have fallen more than 10% since 2 April.
What’s more, its fleet overhaul plan — replacing older Boeing aircraft with more modern and fuel-efficient Airbus models — appears measured and financially prudent. I may continue to top up on this one.
