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3 cheap shares I’d buy if the stock market crashes

Roland Head
Businessman looking at a red arrow crashing through the floor

Will the stock market crash again? We can’t be sure. But if it does, I want to be prepared with a shopping list of good quality companies that I’d like to buy when their shares are cheap.

For this article I’ve selected three FTSE 250 shares. Two of them are stocks I already own, but would like to buy more of. The third is a UK tech stock I’ve admired for a long time, but never managed to buy.

Cheap shares: Direct Line Insurance

My first pick is motor and home insurer Direct Line Insurance Group (LSE: DLG). This well-known firm has built a reputation for its direct-selling approach, but also operates a price comparison brand — so it should enjoy the best of both worlds.

Direct Line shares have fallen over the last couple of years, as have most other insurers. But this firm is one of the larger players in the market, with a history of consistent profitability and generous shareholder returns.

The latest trading update from the group showed insurance sales up by 4.7% to £789.6m during the first three months of 2020.

Broker forecasts suggest profits should start to recover in 2021 and indicate an 8% dividend yield might be possible next year. Although the Direct Line share price has bounced back from March’s lows, I still think this is a cheap share at around 290p. I’d buy.

200 years-old: Coats Group

Thread manufacturer Coats Group (LSE: COA) supplies threads, zips and other types of trim for clothing manufacturers, PPE companies and many other applications. The group says it’s the world’s leading manufacturer of such items.

Coats is a 200-year-old business whose products probably touch almost everyone’s lives (and skin) at some point. These shares were one of my bargain buys during March’s crash, when I managed to grab some at 41p.

Since then, Coats’ share price has risen by around 25% to more than 50p. Despite this strong recovery, I still think these shares look decent value on around 12 times 2021 forecast earnings. Although 2020 is expected to be a poor year, the company appears to have enough cash on hand to ride out the storm without serious problems.

If the stock market crashes again, I reckon this could be a very cheap share indeed.

The one that got away: Computacenter

I’ve admired IT services group Computacenter (LSE: CCC) for at least five years, but I’ve always thought the shares looked too expensive. That’s been my mistake, because the Computacenter share price has risen by 110% over that period.

This business sells IT equipment to corporate customers. It also provides a range of related services in areas such as security, network and data centres.

As you’d expect, this year’s emergency shift to homeworking has been good for Computacenter, which said in May that profits for the first half of 2020 are likely to be “considerably ahead” of last year.

Computacenter shares currently trade on about 18 times 2020 forecast earnings, with a dividend yield of 2.5%. Given the group’s impressive track record, I don’t think this is too expensive. But I prefer to buy shares when they’re cheap, so I’m going to keep on waiting and hoping for another chance to buy this stock on the dips.

The post 3 cheap shares I’d buy if the stock market crashes appeared first on The Motley Fool UK.

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Roland Head owns shares of Coats Group and Direct Line Insurance. The Motley Fool UK has recommended Coats Group. 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.

Motley Fool UK 2020