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Will we get a stock market crash this month? It’s a possibility. September is often bumpy as traders return to their desks and the summer glow fades.
This one is looking bumpier than most as the Iran war intensifies. Yesterday, Brent crude jumped to $108 a barrel, while 30-year gilt yields nudged closer to 6%, a 30-year high. Higher bond yields challenge stock markets because they give investors higher interest on cash or bonds, with less risk to their capital.
The uncertainty is showing up in the FTSE 100. It’s fallen for five straight days, closing at 10,608 yesterday (September 10). It’s still up 14% over 12 months. With dividends, the total return is around 17%.
Could a dip create opportunities?
Given the anxiety out there (and I haven’t even mentioned the potential AI bubble), further slippage can’t be ruled out. Yet it’s far from a done deal.
Investors have fretted over a potential crash for years. Anybody who bailed out has sacrificed massive returns as global markets soared.
I did sell a couple of stocks recently, but that wasn’t due to wider concerns. Both were high-risk recovery plays, Aston Martin and Ocado Group, that were showing no signs whatsoever of recovering. Three months ago, I cut my losses. They’re still falling.
I learned a hard lesson from those two. I bought both as a bit of a punt, hoping they would cast off their long-standing troubles and rebound at speed. In future, I won’t do that. I will focus buying solid companies that are proving themselves today.
Happily, my winners far outweigh my losers and one of my most successful purchases is FTSE 100 wealth manager M&G (LSE: MNG). I bought it three years ago when it looked dirt cheap, with a price-to-earnings ratio of around seven, while yielding an insane 10%.
Is M&G still a buy after its strong run?
Unlike Aston Martin and Ocado, M&G wasn’t riddled with debt and it was making money. I paid 198p per share. Today it trades at 330p, so I’m up 67%. With dividends reinvested, I’ve almost doubled my money.
Latest half-year results showed adjusted pre-tax operating profit rising 15% to £435m, while net inflows rose 14% to £2.4bn.
After their strong run, the shares are a lot more expensive today, with a price-to-earnings ratio of just over 26. The trailing yield is still tempting at 6.2%, but not as juicy as before.
Dividends look sustainable, although the board only plans to increase them by 2% a year, which is currently below inflation.
A stock market crash would knock M&G’s fee-based income and inflows, and sentiment generally. The shares could take a big short-term hit. But that could also reduce the P/E ratio and drive the yield back up. They’re down 5% in the last week, but I’d like a bigger discount.
M&G will be top of my shopping list if markets plunge this month. And if they don’t, I can see plenty of FTSE 100 income stocks that look good value today.
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Harvey Jones owns shares in M&G.
This story originally appeared on Motley Fool
