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Last week was another roller-coaster week in the broader markets. The FTSE 100 index started the week on 22 June at 6,292.60. It gyrated throughout the week and finished Friday at 6,159.30. Yet since the lows seen in March, UK’s main equity index is up over 20%. As volatility kicks back in, many investors are now taking off rose-coloured glasses. Instead they are nervously wondering whether another market crash may happen soon.
Is another market crash likely?
There’s a short and rather easy answer to that question. Yes, at a future date, FTSE 100 shares are likely to decline again. Yet I don’t think it’d be possible or even prudent to give the exact day of such a potential market crash.
Recent market action seems to be tied to news headlines about restarting economic activity across the world and the number of new Covid-19 cases on a given day. Unfortunately there has been a considerable uptick in the number of cases in many countries. The number of hospitalisations is increasing, especially in the US, Asia, and Latin America.
Fears of another wave of the pandemic may well mean a prolonged recession worldwide. As the number of Covid-19 cases increases, I’m of the camp that believes a U-shaped recovery in the economy is most likely. Most economies, including the UK’s, will likely spend a longer time labouring in economic contraction than immediately rebounding. Put another way, a sharp and optimistic V-shaped recovery may be rather unlikely.
For example, the trajectory for unemployment in Britain is unclear. According to the recent figures released by the Office of National Statistics, the coronavirus jobs market has not been encouraging. The latest report states “February to April figures show weakening employment rates, with male employees and self-employed seeing reductions; the reduction in total hours worked is a record both on the year and the quarter“.
Therefore, some short-term profit-taking in many FTSE shares may be due. And the busy earnings season of July and August may put pressure on stocks.
Which company I’d buy in July
As a long-term investor, I am not too worried about the short-term gyrations in broader markets. Moreover, each economic challenge creates opportunities in different sectors.
For example, we have been increasingly relying on firms that specialise in technology, e-commerce, or that at least have a strong online presence. And a number of these businesses, such as Computacenter (LSE: CCC), are publicly traded.
The FTSE 250 member is a leading provider of technology solutions to the public sector as well as corporations both in the UK and overseas. Its client list includes BMW, Costa Coffee, Heathrow Airport, NHS Digital, Royal Mail, UBS, and the University of Munich. It also recently announced an upcoming partnership with the Department for Education to provide computer equipment to children and young people in England.
The company withdrew its dividend in late April. Otherwise, it has been navigating the coronavirus crisis’s choppy waters rather well. The rise of remote working will mean more corporations will invest in technology. And that trend can easily translate into more revenue for Computacenter.
The current price of 1,647p means a forward price-to-earnings ratio of 17.36 and price-to-sales ratio of 0.37. I remain positive on CCC shares and would look to buy, especially if there is a decline toward the 1,600p level or even below.
tezcang has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
