If the stock market crashes tomorrow, here’s what I’ll do with my portfolio
Every so often, the stock market gives investors a sharp reminder of how fragile confidence can be. Whether sparked by interest rate shocks, geopolitical tensions, or a sudden banking wobble, a sharp downturn tends to make an investor question everything.
So what will happen to my portfolio if the market crashes tomorrow? To answer that, I often look back at past examples, and few illustrate it better than International Consolidated Airlines Group (LSE: IAG).
The last time disaster struck
International Consolidated Airlines Group owns familiar names like British Airways, Iberia and Vueling. Before Covid, the stock sat comfortably around 600p, reflecting steady growth and healthy global travel demand.
Then the pandemic hit. Within weeks, planes were grounded, revenues dried up and the group’s share price nosedived by nearly 80%, falling to under 100p. For investors who sold in panic, it was a painful lesson. Those who held on however, would eventually see that patience rewarded.
How it’s bounced back
In the five years since that collapse, the group’s recovered roughly 70%, now changing hands near 370p. It’s not quite back to pre-pandemic highs but it highlights how market crashes rarely last forever. The strongest companies find a way through.
In fact, even after this recent surge, the company still looks undervalued to me. It trades on a price-to-earnings (P/E) ratio of just 8.43 and a P/E growth (PEG) ratio of 0.87 — suggesting earnings are expected to keep growing faster than the price implies.
The risk side of the equation
Of course, investing isn’t without worry. International Consolidated Airlines still carries a hefty £14.34bn debt load, nearly three times its equity. That’s a red flag — though for now, cash flows are strong enough to handle repayments. It’s also important to note that airlines are exposed to geopolitical shocks that can push oil prices higher, as well as the ever-present risk of environmental disasters that could once again ground air travel.
But reassuringly, margins are improving and the group has returned to paying dividends, currently yielding around 2%. Even more striking is the return on equity (ROE) of 58%, which tells me management’s generating excellent returns on shareholder money despite the debt.
What will I do in a downturn?
If there were another sharp downturn, there’s a good chance share prices would get walloped again. Airlines and luxury goods tend to be among the first to feel the pinch when confidence or spending drops. But if the business fundamentals stay intact — and the world keeps flying — history suggests patient investors will eventually be rewarded.
That thinking can be applied to other industries and analysis is required to see if the changed circumstances that caused the crash have undermined the long-term prospects for any holdings.
But overall, I aim to avoid selling solid companies in a panic. A stock market crash doesn’t destroy real businesses overnight – it just changes what people are willing to pay for a while. By focusing on balance sheets, cash flows and long-term demand, I can feel more comfortable riding out the noise.
International Airlines Group’s a great reminder that crashes come and go, but resilient companies can bounce back. As long as I stay diversified and keep a level head, I like my chances – crash or no crash.
The post If the stock market crashes tomorrow, here’s what I’ll do with my portfolio appeared first on The Motley Fool UK.
But this isn’t the only opportunity that’s caught my attention this week. Here are:
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions,
he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy
— and discover:
- Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
- How to potentially get paid by the weather
- Electric Vehicles’ secret
backdoor
opportunity - One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
More reading
- If investors had bought £1,000 of IAG shares 5 years ago, here’s how much money they’d have made…
- High-flying IAG shares are up 50% in 3 months but I still think they’re too cheap to ignore!
- Do I regret selling my IAG shares?
- International Consolidated Airlines (IAG) shares: here’s the share price and dividend forecast for the next 12 months!
- 3 FTSE 100 stocks with low P/E ratios to consider buying right now
Mark Hartley 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.
