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Investors are constantly hunting for the best stocks to buy. And this pursuit’s more important than ever during a crash or correction. After all, history’s shown that these volatile periods create some of the best buying opportunities.
With UK shares recently reaching a new all-time high despite shaky economic conditions, there’s growing concern that a downturn may soon emerge. While this bearish sentiment’s not entirely without justification, a crash is far from guaranteed.
Nevertheless, let’s assume the worst. Which stocks could be terrific investments during a market meltdown?
Defensive versus aggressive
Identifying the best stocks to buy is a little tricky. That’s because the answer changes depending on the individual and their financial goals. Generally speaking, someone who’s already built wealth and is looking to protect it may want to investigate defensive stocks like Unilever (LSE:ULVR).
On the other hand, an investor seeking to leverage market volatility and build wealth may want to zoom in on more aggressive stock picks like Games Workshop (LSE:GAW).
The case for Unilever
Unilever’s far from a high-growth enterprise. But what it lacks in top-line expansion, it makes up for in consistency. Regardless of economic conditions, its vast portfolio of branded products is always in fashion and readily available from almost every supermarket in Britain.
This makes for highly predictable cash flows even during periods of economic weakness. And it’s translated into a relatively stable share price compared to the wider stock market throughout the pandemic and the subsequent cost-of-living crisis.
What’s more, dividends and share buybacks continued to flow during a time when most other businesses were cutting back. Of course, it’s not a risk-free investment. Unilever’s not the only fast-moving consumer goods (FMCG) enterprise operating in the defensive consumer staples sector. And rivals like Premier Foods are also fighting to be on household shopping lists, which may trigger brand substitution if alternative products offer better value.
Nevertheless, I think this stability and reliability definitely make the business a contender for a top stock to consider buying in case of disaster.
The case for Games Workshop
As a consumer discretionary enterprise, Games Workshop’s far more vulnerable to a market correction, especially given its premium valuation. For reference, its price-to-earnings ratio currently sits at 29.4. But this exposure to volatility may create an attractive entry point for long-term investors.
With the rising popularity of Warhammer and expansion into licensing, the company’s having little trouble hitting new record highs for both revenue and earnings. And with chunky margins driven by enormous pricing power, the business is highly cash generative.
As such, Games Workshop shares are actually among the best-performing investments over the last 25 years. And with the share price up another 50% over the previous 12 months, this trend seems to be continuing. However, investors can’t ignore the risks.
The massive success of Space Marine 2 enabled licensing revenue to surge. But with the next instalment still several years away, this creates some tough comparables. And combining a revenue slowdown for a premium-priced valuation during a market downturn could leave investors disappointed.
Furthermore, with all its core plastic miniature manufacturing located in the UK, tariff disruptions from exporting to the key US market could also hamper performance. Nevertheless, at the right price, these risks might be worth taking, in my opinion.
