3 ways in which I try to detect cheap actions during a stock market accident

The fall in the United States stock market during the past week is acute enough to define itself as a stock market accident. Here in the United Kingdom, the 10% drop in the last week is more in correction territory. In addition to jargon, many investors like me are looking to examine the market to find cheap shares. This is how I do it.

Ignoring the lower 10%

Filtering for actions that have seen the highest price of shares fall in the recent past is a good starting point to find opportunities. However, the worst 10%always discount. This is because there will always be some companies that will really fight as a result of the accident.

In this case, I mean US rates. For example, take Aston Martin Lagonda (LSE: AML). The action has dropped 29% during the past month when the tariff talk began to get serious. Now it has dropped 64% in the last year. However, the company has not only been trapped in a poor feeling. Tariffs will genuinely affect their finances.

The 25% import rate means that Aston Martin cars sent to the US will be more expensive. If the increase is added to the price of the car, this could reduce sales volumes. If the business maintains the equal price, the profit margins will be eaten quickly.

In addition, the impact could reach other markets around the world. For countries affected by tariffs, customers could reduce spending due to weaker economic growth. In this case, luxury brands like Aston Martin could be more affected, since concerns are not needs.

In my opinion, the risk is whether Aston Martin can grow sustainable the national market of the United Kingdom to compensate for the external blow or tariffs are eliminated quite quickly.

Focus on assessment

After looking at the actions that have fallen (outside the worst 10%), I compare the movements of the price of the shares with the changes in the assessment. I like to use the profit price ratio (p/e). The fact that an action has fallen by 10%, the P/E ratio could be very high, indicating that it is still overvalued.

A reference figure of 10 is what I use when trying to specify a fair value. So, in terms of pointing to cheap actions, I am looking for actions that have fallen to such a level that the relationship has moved below 10. In theory, the lower the better relationship, but there are exceptions to each rule!

Sectors of the future

To deepen even more, I take the existence fallen with a low P/E relationship and then group the rest in sectors. From here, I am looking for areas that I think could work in the coming years. This would include people like Renewable Energy, ai and Healthcare.

If there are actions in this category, I think they are more worthy of being called cheap actions because the value later should be greater. This contrasts with a small sector, where the stock could be seen now now, but has a limited reach to recover in the future.