Banks crash. Stock markets fall. I’m buying cheap stocks

At Motley Fool, we like to buy cheap stocks when the market is volatile and the stock price is falling. This week’s issue may provide another good entry point.

I wrote this before trading started on Monday, but it seems like a crazy day, after the collapse of US-based Silicon Valley Bank on Saturday.

An uncertain week ahead

The contagion spread to the UK banking sector, with Barclays, HSBC and Standard Chartered Down by around 5% and Lloyds Banking Group down 4%. In a connected world, any shock in the US is immediately felt here.

The weekend press was full of disturbing articles that we were in the midst of a banking crisis and a financial crisis. The consensus is that we must escape, but only by the skin of our teeth.

We will know whether the regulatory efforts to support the banking sector after the financial crisis have succeeded. The Bank of England’s latest financial stability report says UK banks are sufficiently capitalized and strong enough to weather a sharper economic downturn.

The fundamental problem facing the banking sector – and the rest of the economy – is that interest rates continue to rise after more than a decade of free lending.

The cracks are visible and could widen with the Federal Reserve and Bank of England warning of impending rate hikes.

The weekend has given regulators in the US and UK time to formulate rescue plans. In the US, the deposit will be protected. HSBC set to buy SVB UK. This bodes well, but there will be more surprises, both pleasant and unpleasant.

I’ll be watching it closely, as I’m looking to buy the stock at a lower price. I had a splurge last October while on FTSE 100 dipped below 7,000. And I bought Lloyds, persimmon, Rio Tinto and Rolls-Royce because I thought they looked cheap, and they were taken up.

UK stocks can be cheaper

When the FTSE 100 hits 8,000 it is a little harder to find value in the market, but far from impossible. As I have written in the past few weeks, Aviva, Legal & General, BT Group and Unilever everything seems well priced to me. They may look cheaper in the future.

Finding out if a stock is good is far from an exact science. I start by looking at metrics such as price/earnings and price-to-book ratios. Then I look at recent performance, preferring stocks that have been underwhelmed in some way. Next, I check the company’s accounts to see if the market has been very tough on the business, and if there is any chance of a change.

Even so, I may be wrong. It is impossible to know everything about stocks. I know this though. In times of trouble, stocks quickly become cheaper. As someone who likes to keep buying, short-term volatility is a good long-term opportunity.

I hope that the latest crisis is sorted out quickly and that we avoid the worst. I also hope to take advantage and buy cheap UK stocks.