During several trading days this year, the volatility seen on the stock market has been more akin to the Bitcoin price. Large price swings, followed by sudden drops or speedy reversals, have characterised the FTSE 100 in 2020. For long-term investors, it’s been of vital importance to avoid the urge to ‘day trade’ with their investment portfolios. Buying or selling at the wrong time can be very costly. By having a more measured approach, the stock market crash can offer good bargains for long-term growth, without needing to be very active in the market.
By contrast, Bitcoin often does force you to be active. It isn’t really an asset you can feel comfortable buying and then forgetting about for several years. The value in the long term could just as easily be $0 as is could be $20,000. Add into this the need to negotiate Bitcoin forks, fraud and scams, and general lack of viable forecasts. All of this makes me hesitant to put any significant amount of money into it.
Stock market crash bargain
One stock on which I think the crash has been overly harsh is M&G (LSE:MNG). The share price halved in the space of a month, before managing to get a firmer footing. The share price is still down over 30% from the start of this year, making it a stock market crash bargain, in my opinion.
I’m not going to claim M&G is some high-flying, high-growth stock that could give you triple-digit returns over the coming few years. But the London-based investment manager is a well run, well capitalised company that offers investors some security in uncertain times. I’d be targeting a return to the year-to-date highs around 250p over the next couple of years, effectively offering that 30% drop back as a profit. Anything at a 30% discount is a bargain in my book.
Reasons to buy
In a business update at the end of May, M&G came out and said it was in a financially strong position, despite the virus. As a way of demonstrating this, the firm went ahead with a planned dividend. This added up to around £410m worth of payouts to investors. Now, at a time when numerous large FTSE 100 firms were cutting dividends to retain cash flow, M&G did the opposite. This highlights to me that cash flow is not an issue at the firm, and ticks the box on being virus-resistant.
Not only is the firm paying out dividends, it’s going on the offensive and acquiring other businesses. It recently announced that it was buying the Acentric platform from Royal London. This platform is effectively a DIY investment shop for financial advisors. The purchase therefore brings automatic assets, advisors and revenue to M&G. I’m confident that not only will this help M&G grow via external revenue channels, but it wouldn’t have gone ahead unless it could handle the implications of buying it.
So what we have here is a solid business in a strong financial position, poised for growth via acquisitions. You can currently buy the Stock at a 30% discount thanks to the stock market crash. That’s what I call a bargain!
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Jonathan Smith and The Motley Fool UK have no position in any of the Stock mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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Author: Jonathan Smith