When Markets Tremble, Should You Be Bargain Hunting?
A Contrarian Take on Cheap Shares in Turbulent Times
There’s something almost poetic about market crashes. Amid the chaos, fear, and headlines screaming doom, there’s also opportunity—if you’re willing to think differently. Right now, as geopolitical tensions rattle the FTSE 100 and oil prices spike, the financial world feels like it’s holding its breath. But personally, I think moments like these are when the most intriguing investment stories unfold. Not because it’s easy (it’s not), but because it forces us to question conventional wisdom.
The Defensive Charm of Admiral Group: More Than Meets the Eye
Admiral Group, the general insurer, is one of those stocks that seems to shrug off the chaos. With a trailing yield of 5.5% and a price-to-earnings ratio of 12.4, it’s tempting to label it a ‘safe haven.’ But what makes this particularly fascinating is how it’s thriving in a sector that’s often seen as cyclical. Their recent full-year results were exceptional—a 16% jump in pre-tax profits and a 7% rise in customer numbers. Yet, here’s the kicker: this isn’t just about numbers.
In my opinion, Admiral’s resilience isn’t just luck. It’s about positioning. While rising oil prices could squeeze household budgets, forcing drivers to shop around for cheaper insurance, Admiral’s strong pricing power suggests they’re not just another player in the market. They’re a brand customers trust, even when times are tough. What many people don’t realize is that insurance is one of those industries where loyalty often trumps price sensitivity—especially when the alternative is risking inadequate coverage.
However, there’s a flip side. Admiral’s long-term share price performance has been… underwhelming. Flat over the past year, up just 4% over five. This raises a deeper question: Is this a company that’s hit its peak, or is the market simply undervaluing its defensive qualities? From my perspective, the latter seems more plausible. In a world where economic uncertainty is the new normal, companies that can maintain growth while returning cash to shareholders are rare gems.
NatWest Group: A Bank Stock That’s More Than Just a Bargain
Now, let’s talk about NatWest Group. Banks, by their very nature, are cyclical beasts. They thrive when the economy does, and they suffer when it doesn’t. But NatWest’s recent plunge—down 12% in a month—feels almost exaggerated. A P/E ratio below 8.5? That’s not just cheap; it’s borderline suspicious.
What this really suggests is that investors are pricing in a worst-case scenario. And while it’s true that rising living costs could lead to more loan defaults, there’s another side to this story. If interest rates rise (or cuts are delayed), banks like NatWest could actually benefit. Their net interest margins—the difference between what they pay savers and charge borrowers—would widen. It’s a classic case of short-term pain potentially leading to long-term gain.
One thing that immediately stands out is NatWest’s recent performance. Earnings per share jumped 27%, and they announced a £750m share buyback. Yet, the market seems more focused on the risks than the rewards. Personally, I think this disconnect between fundamentals and sentiment is where opportunities hide. But it’s not without risk. Banks are notoriously sensitive to economic shocks, and NatWest is no exception.
The Broader Trend: Why Market Crashes Are a Contrarian’s Playground
If you take a step back and think about it, market crashes aren’t just about fear—they’re about mispricing. When headlines dominate, rationality often takes a backseat. That’s why companies like Admiral and NatWest become interesting. They’re not just cheap; they’re potentially mispriced relative to their intrinsic value.
A detail that I find especially interesting is how quickly sentiment can shift. Just weeks ago, NatWest was starting to look expensive with a P/E of 15. Now, it’s a bargain. This volatility is a reminder that markets are driven as much by emotion as by fundamentals. And for long-term investors, that’s both a challenge and an opportunity.
The Psychological Underpinning: Why We Overreact (and Why It Matters)
Here’s something most analysts won’t tell you: humans are terrible at handling uncertainty. When oil prices spike and wars break out, our instinct is to flee. But history shows that those who resist this urge—who buy when others are selling—often come out ahead. It’s not about being brave; it’s about being disciplined.
What this really suggests is that investing isn’t just about numbers; it’s about psychology. The market’s fear today could be tomorrow’s opportunity. But it requires a mindset shift. Instead of asking, ‘Is this risky?’ you should ask, ‘Is this risk priced in?’
Final Thoughts: The Art of Buying When It Hurts
In my opinion, the current market plunge isn’t a reason to panic—it’s a reason to think. Admiral and NatWest are just two examples of companies that could emerge stronger from this turmoil. But they’re not without risks. Admiral’s flat share price growth and NatWest’s exposure to economic shocks are real concerns.
What makes this particularly fascinating is how it challenges our assumptions. Are these companies truly undervalued, or are we just fooling ourselves into seeing opportunity where there is none? Personally, I think the former is more likely. But it’s not a bet for the faint-hearted.
If there’s one takeaway, it’s this: market crashes aren’t just about losing money; they’re about reallocating it. Those who understand this—who can separate noise from signal—are the ones who’ll come out ahead. So, the next time you see headlines screaming doom, ask yourself: Am I seeing risk, or am I seeing opportunity in disguise?
