Interest rates are rising. I don’t know whether or not this will result in a stock market crash, but in the event of a correction in 2022, here are three FTSE 100 companies that I’ll be looking at.
The first company is Experian (LSE: EXP). Experian provides credit information to lenders to help them make decisions about the creditworthiness of prospective borrowers. It operates in an industry with relatively little direct competition and produces strong returns on invested capital as a result. The company has a vast database of information, which is difficult to replicate, and this provides a barrier to entry for potential competitors.
Experian currently has a market cap of just over £28bn. I think that’s a little on the expensive side for a company that also has over £3bn in debt and produced around £830m in free cash last year. I therefore won’t be buying it at current prices. But I do think that the strength of the underlying business might make Experian shares attractive in the event of a stock market crash brought on by rising interest rates.
I also think that there is a lot to like about Rio Tinto (LSE: RIO). As a mining company, Rio Tinto naturally tends to do better when prices for the commodities it produces are high, but its low cost of production means that the company can make money even when prices are lower. Most of the company’s revenue also comes from politically stable areas, such as Australia, North America, and Europe. This helps the overall quality of Rio Tinto’s earnings
The price of iron ore is substantially lower than it was last year. Since iron ore makes up around 70% of Rio Tinto’s revenue, I expect declining iron ore prices to weigh on the company’s earnings and I am expecting the dividend it returns to shareholders to be lower as a result. Right now, I am not convinced that the market is pricing this in yet. Nonetheless, in the event of a stock market crash, I would be tempted to pick up shares in a commodity producer with quality assets and a low cost of production.
The last company that would catch my attention in a stock market crash is Legal & General (LSE: LGEN). The company’s businesses include insurance, capital investment, investment management, and retirement. It uses its asset base to generate returns and growth has been steady, rather than spectacular, from around £492bn at the end of 2018 to just over £568bn at the midpoint of 2021.
Legal & General shares currently trade at 1.69 times their book value and the company generates a return on equity of 21%. I think that this implies an investment return of 12.5%, which I view as attractive even without explosive growth. The possibility of a stock market crash constitutes a risk for Legal & General’s investment businesses and if money leaves the markets, then the investment products it offers might suffer as a result. But I made an investment in Legal & General in 2020 and would anticipate making another one in the event of a stock market crash in 2022.
Stephen Wright owns shares of Legal & General. The Motley Fool UK has recommended Experian. 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.
