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I think this share will do well if the stock market crashes again

Andy Ross
Tired or stressed businessman sitting on the walkway in panic digital stock market crash financial background

Investors seem to be split on the future of the market. Some think there will be a stock market crash, but many don’t. Despite this evident uncertainty, the FTSE 100 and stock markets around the world have risen since the lows of March.

Given that no one can predict the future and that the possibility of another market correction does exist, I think DS Smith (LSE: SMDS) is a share worth considering. I think it could do well whatever happens. 

Well-positioned even if there’s a stock market crash

The packaging company’s full-year results are scheduled for later on this week. It’ll be interesting to see a further update on the impact of Covid-19 on its trading. It’ll also be worth investors keeping an eye on debt, which has gone up as a result of large acquisitions.

Back in April, the group cancelled its interim dividend. At the same time, the group said costs were rising but demand remained strong, driven by e-commerce as quarantined consumer shopped online.

The group stated it had £1.4bn in undrawn credit, and no significant refinancing required until 2023. It should therefore be in decent shape with little need to call on investors for more money.

With a price-to-earnings multiple of 10, I think the shares look very cheap. I’m hopeful the company will confirm the full-year dividend by the end of this week. Having that income would give it an attractive income and growth combination that could be very profitable. 

The danger comes if there’s a prolonged recession and consumers rein in even their online spending. Then there will be less demand for the company’s products, which would hit revenues and profits and have a negative effect on indebtedness. Overall, though I’m positive about the company, even in this worst-case scenario. 

The winner from the March market fall 

Continuing on the online theme, Ocado (LSE: OCDO) has been a winner from the current crisis. Despite a recent tailing off, the share price is up over 60% this year so far. Quite an extraordinary rise in the circumstances. I think a combination of high tech valuations, a surge in demand for online shopping, and a lack of competitors have combined to drive up Ocado’s share price.

Long term, I’m not a fan. I think the share price is too high and I don’t see the company becoming profitable any time soon despite becoming an increasingly mature technology business. The rise of online shopping alone isn’t enough to get me excited about the shares.

The evidence though speaks for itself. Plenty of other investors think Ocado has a bright future. Hence the share price rise. It’s possible I’m wrong or missing something, and on that basis Ocado could be another share that does well if the stock market crashes – but only if the cause of that crash is a second spike of coronavirus.

A stock market crash caused by fears over the economy more generally or negative investor sentiment will likely hit overvalued shares hardest. In that instance Ocado may fall further than most, and very quickly.

The post I think this share will do well if the stock market crashes again appeared first on The Motley Fool UK.

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Andy Ross owns shares in DS Smith. The Motley Fool UK has recommended DS Smith. 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