2 top stocks to buy during a sell-off

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Share prices have been dropping lately as investors contemplate the possibility of a recession. As a result, I’m on the lookout for stocks to buy in case markets sell off further.

I’m looking for two things. The first is a high-quality business and the second is a price that is currently too high but might fall to a level that interests me.

There are two companies on my radar at the moment that meet these conditions. The first is a UK industrial company, the second is a US tech stock.

Halma

The first of my stocks to buy in a market sell-off is Halma (LSE:HLMA). This is a FTSE 100 stock that I’ve had an eye on for some time, but I’ve never seen it at a price that I thought was attractive.

Over the last five years, Halma has been one of the best-performing stocks in the index. Its share price has increased by 95% since 2017.

The stock has had something of a reversal of fortunes this year, though. Halma shares are down 31% since January.

I think that the underlying business is terrific, though. When Halma reported earnings in June, income was up 15% from the previous year and revenues were 17% higher.

A lot of Halma’s growth comes from acquiring other businesses. This brings risk in the form of the possibility of overpaying for acquisitions.

As a result, I’m looking for a price below £20 per share before I buy the stock for my own portfolio. That price implies an earnings yield above 3%, which is what I’d be looking for in this type of stock.

Apple

My other stock to buy in a stock market downturn is Apple (NYSE:AAPL). At $167 per share, the stock is a bit expensive in my view, but I’d buy shares for my portfolio if the price came a bit lower.

I think Apple is an outstanding business. The company generates around $118bn in cash and uses less than 10% of this on capital expenditures.

The risk with Apple is that its growth is somewhat slow. With earnings forecast to grow around 10% annually over the next five years, the stock looks expensive.

I don’t think this is a sign that the company has hit a ceiling, though. Apple currently accounts for around 18% of the smartphone market, which leaves plenty of room for further growth.

A couple of months ago, the stock was trading at around $130 per share, which I think is an attractive price. But a strong recovery has moved Apple shares beyond the price I’d be willing to pay for them.

Apple is Warren Buffett’s largest stock investment and I have some indirect ownership of the business by owning Berkshire Hathaway shares, but in a market sell off, I’d buy the stock directly.

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Stephen Wright owns Berkshire Hathaway (B Shares). The Motley Fool UK has recommended Apple and Halma. 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.