The stock markets appear to be in a good place right now. But going by the fluctuations seen recently, I think we need to brace as much for a potential stock market crash as we should ideally prepare for a market rally. Neither may happen, of course. But it is better to be safe than sorry, I think. So in this article, I focus on a FTSE 100 safe stock I’m happy to be holding if the stock market crashes, especially if it is accompanied by an economic slowdown.
A gravity defying FTSE 100 stock
Rentokil Initial (LSE: RTO) is a multinational that provides pest control and hygiene services. The safety of the stock is evident in how fast it bounced back after the market crash of March 2020. In a little over three months, it was already back to its pre-crash highs of 2020.
It continued to rise even after that and maintained a relatively elevated level until the stock market rally started in November 2020. Briefly, it fell out of favour then, but since mid-2021 it has been running up again. It has long left behind even 2020’s highs. This means that the market crash was just a blip for the stock.
What explains Rentokil Initial’s rise?
Rentokil Initial made gains during the pandemic because demand for its hygiene services suddenly rose. So it was one of the few stocks that benefited at a time when most other stocks were languishing as the economy was under lockdown. And the gains to its hygiene business continue to accumulate even now. Late last month, the company upgraded its medium-term growth targets, largely because it expects this line of business to grow faster.
A pricey stock to buy
The downside to the sustained share price increase of course is that the stock starts looking pricey. So Rentokil Initial’s price-to-earnings (P/E) ratio is at a pretty high 43 times, compared to the FTSE 100 ratio of 15 times. I think if economic growth picks up and the stock markets keep rising, cyclical stocks like miners may soon start looking more attractive.
I think even that will be a good opportunity for me to buy more of the stock. The fact is, the company has been growing its revenues for a while. It did make a loss in 2018, which is a downer. But this was the only such occasion in the last five years. And the company’s outlook is good too.
If in the unfortunate event that some other mutated version of the coronavirus strikes again this winter, another stock market crash maybe in the offing. But at least I can be secure in the thought that some of my investments are still in the right stocks. The stock is a long-term buy for me.
Manika Premsingh owns shares of Rentokil Initial. 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.
This post was originally published on Motley Fool
