On Thursday, we’ll get the Q4 data for GDP growth for the UK. Given that the economy shrunk by 0.1% in Q3, there’s technically a possibility the UK enters a recession if the Q4 figure is also negative. The disappointing growth outlook could potentially trigger a stock market crash. Here’s what I’d buy in that eventuality.
Picking up a bruised retailer
Part of the weak economic growth has come from lower consumer demand. This has hit retailers hard, with some high street names struggling. I see some value ideas out there, with WH Smith (LSE:SMWH) as a stock on my watchlist.
Over the past year, the stock has fallen by 26%. It has 523 stores on the high street, but over 1,700 worldwide, with airports and travel locations being key revenue drivers. For example, the 2023 revenue from travel was £1.32bn, up from the £927m from the year before.
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So even though the stock is under a rain cloud from negative investor sentiment, I think the business can be very resilient going forward as the revenue isn’t as focused on the high street as most people think. Granted, a risk is that the stores in the UK will likely come under further pressure, dragging the rest of the firm down.
Ultimately, if we did see a market crash in the coming months, a further dip in the share price would represent a great opportunity for me to snap up the stock.
Banking on a crash
Another angle that could impact stocks from a crash would be interest rates. If we hit a recession, I’d expect the Bank of England to cut the base rate quickly. This would help to ease the pressure on businesses and individuals.
A stock I think could do well from this would be Barclays (LSE:BARC). At the moment, the stock is in the doldrums, down 24% over the past year. Any crash in the market would likely cause the share price to fall even further.
I’d snap up some more of the stock at that point, given that I feel it’s already undervalued. Some would argue that the bank would struggle if interest rates were cut. This is partially true, but I believe this would be more than offset by the economic boost it would provide to the clients of the bank. For example, lower rates would boost mortgage applications. It would also make people more likely to spend on credit cards and take out loans.
Further, it should help to prevent defaults on financial products, which would save the bank money if interest rates kept going higher instead.
Even though I already own Barclays shares, I’d be happy to buy more at a lower price. This is known as pound cost averaging and helps to lower my overall buying price.
