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The stock market has risen to new all-time highs this month. Although this could continue, some investors are beginning to worry that a crisis is still looming. Some cite escalating geopolitical tensions around the world, along with concerns that interest rates will not be cut this summer as most are planning. Although this is not my primary opinion, I have two stocks on my watchlist that I think would be great to buy during a downturn.
Too high at this time
The first one may not be a big surprise to many. Rolls-Royce (LSE:RR) shares are up 183% over the last year. With the share price currently above 400p, I simply cannot justify buying at the moment. The valuation seems overstated and I have a hard time seeing a massive bullish move next year.
However, when I consider what prompted the move, it makes sense. The company has done a complete 180 degrees from the struggling 2021 pandemic company. It is gaining ground in the power generation division. Additionally, civil aerospace profit margins are really starting to recover. This was one of the hardest hit areas during the pandemic. However, for 2023, the operating profit margin was 11.6%, up from 2.5% a year earlier.
Of course, there is a risk that most of the change has already occurred. This could mean that future financial performance will stagnate, rather than continue to increase.
Based on fundamentals, I like the stock. Therefore, if we were to see the share price rapidly drop by a significant amount, this is one of the companies I would certainly look to acquire.
A stable income option
The other stock on my watch list is Supermarket Income REIT (LSE:SUPR). The real estate investment trust does what it says. Specifically, it invests in a diversified portfolio of supermarket real estate assets in the United Kingdom. The income earned from leasing these assets means they can pay dividends to shareholders along the way.
The share price is down 14% over the past year. REITs have struggled as high interest rates make it more expensive to finance new purchases. Additionally, demand for new tenants is lower as a result of the cost of living crisis.
Although these are risks going forward, I think the REIT could fit quite well into my income portfolio. After all, the current dividend yield is 8.03%.
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For investors who don't own income stocks, I think this is a great option to consider buying now. Since I already have enough income stocks in my portfolio, I would only look to add them if it became a real bargain, such as during a market downturn. The lower share price would act to increase the dividend yield, making it even higher. At that point, I would look to step in and buy.
