This week’s steep sell-off in global sharemarkets is a good reminder to have a shopping list ready of Australian stocks you’d buy in a market pullback.
What’s a market pullback?
A market pullback is a temporary pause or dip in an asset’s overall trend. It’s when a share price that’s being going up, pauses or even goes down for a short period (usually not more than two or three sessions), or vice versa. In a pullback of an upwards trend like we are currently seeing, the bear bites back at the bull.
A market pullback can be caused by many factors, including a loss of trader confidence after an economic announcement or event. Or a global pandemic causing ongoing ruckus. Other factors that affect the market include:
- Government monetary results or changes in policy
- Natural disasters or even just extreme weather
- Wars or other conflicts
- Unusual inflation or deflation
- Corporate or government performance
- Technological changes
- Regulation or deregulation
- Trust in a particular industry or legalities around it
While pullbacks can be unnerving, they are generally temporary and short in duration. They are the result of demand falling because prices have risen too much. Investors simply aren’t willing to pay them at the current time. The drop in demand generally means that prices will follow suit until the market evens back out again.
Pullbacks can mean opportunities for investors
Tribeca Investment partners fund manager, Jun Bei Liu gets excited when this happens because it provides buying opportunities for investors to buy companies on the dip.
Lui says the current market has evolved from profit taking into lowering risks. However she remains positive about the sharemarket to the end of the year.
She has three stocks on her shopping list that she’d be buying in a sell off.
Stocks to add to your market pullback shopping list
On line recruitment company Seek (SEK) is the first stock on Lui’s list. Seek‘s earnings are very much linked to the recovery in economic activity, she says, and the latest lockdown’s across NSW and Victoria have hardly impacted the strength of underlying job volumes.
In Lui’s eyes, Seek is a really good buy, and the stock is not “crazily expensive”, unlike other growth companies.
WiseTech Global (WTC)
Another stock Lui would be buying is WiseTech Global (WTC). Despite a huge 25 per cent rise in its share price over the last two months, the global logistics business is set for big growth. Although the share price is expensive at the moment, a market pullback will provide a good opportunity to get in and ride the growth strategy.
Endeavour Group (EDV)
Endeavour Group (EDV) is Lui’s third stock pick. EDV was spun out of Woolworths and is a great business to hold today. The business has been impacted by the lockdown of hotels and pubs, but Dan Murphy’s and BWS have been benefitting. Once the economy reopens, the company will be a big winner and there will be plenty of merger and acquisition opportunities. Plus the share price is cheap compared with Coles and Woolworths.