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There is a lot of talk this week about a possible stock market correction. This comes shortly after an update from the Bank of England (BoE) which contained a warning to investors.
The bank noted that investors are “giving less importance to risks, such as geopolitical events or continued high inflation,” making a sharp correction in asset prices more likely.
Now, to be clear, the Bank of England isn't signaling the timing of the next market crash. However, the central bank is saying that some complacency may be setting in among investors. That got me thinking: what stocks would I want to buy if we saw a crash?
The pharmaceutical group on my watch list
As a reminder, a stock market correction is generally defined as a drop of at least 10% from a recent high. crash A drop of 20% or more is considered.
While that may scare some, I consider myself a long-term investor. That means I'm willing to endure some short-term uncertainty to acquire high-quality stocks at bargain prices.
He FTSE 100 Index is up 8.5% since the beginning of the year, but I still consider it fertile hunting ground. During that same time, I have seen the GSK (LSE:GSK) share price up just 1.5% to 1,500.5 pence.
Despite lagging behind the broader index, I like the company’s fundamentals. With a market capitalisation of over £60bn and a dividend yield of 3.9%, GSK ticks many of my boxes.
GSK, one of the world's leading pharmaceutical companies, has been under pressure lately. Recent official guidelines in the US have reduced the potential market for its shares. Arexvy vaccine. This, combined with ongoing lawsuits related to its discontinuation Zantac Heartburn medications have not helped the stock price.
However, if there were to be a correction in the UK stock market, I would like to invest in GSK. The company is a leader in the sector and has significant research and development (R&D) activities totalling £6.2 billion in 2023. I believe that economies of scale can benefit GSK and drive long-term value over my long-term investment horizon.
Furthermore, demand for medicines tends to remain constant, regardless of the economic cycle. I like the defensive characteristics of the industry and GSK could provide a diversification benefit to my portfolio.
With a price-to-earnings (P/E) ratio of 14, it's fair to say that GSK isn't the cheapest stock out there right now. However, a broader market downturn could well impact its valuation and I'd be waiting to buy.
Silly takeaway
I am a fan of GSK's business and the sector it operates in, but there are risks that may affect my investment thesis.
In recent weeks we have seen that regulatory hurdles can affect the potential sales of a new drug. The potential threat of lawsuits and the failure rate of new products in the research and development phase can also affect valuation.
However, I do think it is necessary to support long-term leaders in their field. If we were to see a stock market correction, GSK would be one of them. stock I would be interested in purchasing.
