Will the Iran war trigger a stock market crash? Frankly, I’m surprised we haven’t had one already, as analysts warn we’re heading for the biggest energy shock in history. We’ve already had a correction, defined as a quickfire drop of 10%. For a crash, major indexes like the FTSE 100 have to fall 20%. Will it happen?
It can’t be ruled out. The ceasefire in Iran is fragile. Talks with the US could break down at any point, and the fighting could resume.
On 6 April, Brent crude hit $109 a barrel amid talk of $200 by the summer. Last week, it retreated to $95. That’s just one example of how markets are impossible to predict. At The Motley Fool we don’t even try. Instead, we focus on getting ourselves ready for whatever tomorrow brings.
For me, that means sticking to the basics. Build a diversified portfolio covering a span of stocks and sectors. Focus on companies I’m happy to hold for at least five years, and ideally longer. And keep a watchlist of high-quality businesses I’d love to own at the right price. If a sell-off comes, I want to know what I’m buying, and why. I keep a spot of cash handy in my trading account, just in case.
In a crash, shares tend to fall across the board. The good plunge with the bad. The key is to focus on businesses with strong competitive positions, reliable cash flows and proven management. When that kind of company goes on sale, it’s time to go shopping.
FTSE 100 grocery giant Tesco (LSE: TSCO) stands out on those terms. It’s had a remarkable run lately. The shares are up 54% over the past 12 months and 107% over five years, with dividends on top. It’s been behaving more like a whizzy growth stock than an established blue-chip behemoth.
Tesco has tightened its grip on the UK grocery market, using its scale to keep prices competitive. Its Clubcard scheme continues to drive loyalty and repeat spending. Fresh food sales have been rising rapidly. Market share has slipped slightly since Christmas to 28%, but that’s still way ahead of closest rival Sainsbury’s at 15.6%, Worldpanel data shows.
Tesco still faces challenges. Wholesale distribution company Booker is underperforming the wider group. Margins are perenially tight at around 3.9% and could be further squeezed by the energy price shock. Aldi and Lidl continue to menace. After a strong run, Tesco trades on a relatively high price-to-earnings ratio of 17.7, while the trailing yield has slipped to 2.8%.
That could quickly change if we get a stock market crash and Tesco shares are dragged down with everything else. This is exactly the kind of high-quality, resilient business I’d love to pick up at a discount and hold for years.
