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As an investor, I am always on the lookout for stocks to buy that can enhance my portfolio. However, I am certainly on high alert when the markets reverse. That’s because when stock prices fall, there are often buying opportunities.
We are going to explore.
This is what Buffett says
Legendary investor Warren Buffett often says he’s happy when stock prices go down, because it gives him the chance to buy more of his favorite stocks. Buffett once said that “net buyers” Stocks benefit when the stock market goes down.
But as a value investor, it certainly can be easier to find value stocks—those that trade at a discount to their intrinsic or book value—when stock prices fall. To that end, Buffett once advised investors to be “fearful when others are greedy, and greedy when others are fearful”.
Finance
Stocks have fallen in most sectors in recent weeks, but the biggest losers have been financial stocks. This is an area I’m focusing on because I don’t think the correction is warranted.
Shares across the sector fell after the Silicon Valley Bank fiasco, which raised concerns about the health of other banks’ bond holdings. However, as far as I’m concerned, these concerns are greatly exaggerated.
European banks like lloyds and barclays they have diverse bond holdings, impressive liquidity coverage, and sticky family deposits that account for 30% of all liabilities. These are very different banks from the American tech financier that had to sell bonds at a loss as interest rates rose.
The biggest challenge for banks is for the debt to go bad with the interest rate rising so rapidly. But, always optimistic, I think we are close to the terminal rate.
But it wasn’t just the banks that fell. companies like legal and general and Hargreaves Lansdown suffered, perhaps unfairly.
Accommodation
Real estate stocks are among those also feeling the pain. Khaki It’s down 13% in a month (45% in 12 months) and several homebuilders fell further after the rate hike this week, despite a positive inflation forecast.
One stock that largely bucked the trend is Vistry Group. Stocks are down about 6% in a month (a 25% drop in a year), but there has been some positive news. The firm noted a 21% rise in adjusted pre-tax profit to £418.4m for the year to December 31 and said buyer confidence was improving.
I think the worst is behind the home builders.
So what am I doing?
I am focusing on the most affected part of the market, the banks. barclays It’s down over 20% in a month (17% in a year) and I really don’t think it’s justified. The stock is now trading with a price-earnings ratio of just 4.5. As such I am reloading stocks like Lloyds and Barclays.
I also think it’s time to rethink the housing market. And Vistry is a good option. Interest rates could well drop from here, and that’s good for private sales. Additionally, the homebuilder has an affordable housing business that should provide some degree of visibility into future revenue; we could even see growth here if the government misses its own affordable housing target.
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