3 foolproof stocks to buy in the event of a stock market crash
Most people won’t be happy to hear this, but a stock market crash or double-digit correction could be on the way.
To be crystal clear, no one can accurately predict in the long term when a crash or correction will occur, how steep the drop will be, how long it will last, or in many cases what it is. which will precipitate the movement lower in the larger market. But one thing is clear: Crashes and fixes are part of the normal investment cycle and the price of admission to the planet’s greatest wealth creator.
History is no friend of the market in the short term
Right now, there is no shortage of tailwinds for a stock market crash. In particular, the story does not seem to be the friend of the reference S&P 500 (SNPINDEX: ^ GSPC) in the short term.
For example, the widely followed S&P 500 behaved similarly after each of its previous eight bear market lows, dating back to 1960. In the three years since the rebound from its low, the S&P 500 has always had a case or two where it went down. at least 10%. Rallying to a bottom of the bear market is a bumpy process that takes time. With the overall index doubling in value in less than 17 months, there’s a good chance we’ve been waiting for some “bumps” for a long time.
History is also not a fan of extended valuations. At the close of business on Monday, October 4, the Shiller price / earnings ratio of the S&P 500 was north of 37. The P / E Shiller takes into account inflation-adjusted earnings over the past 10 years. While access to information on the Internet has helped increase P / E multiples since the mid-1990s, the story is pretty clear that bad things happen when the S&P 500’s Shiller P / E goes above 30. In the previous four cases this happened, the general index lost at least 20% of its value.
Even the story behind the use of margin debt is worrying. While it is perfectly normal for the outstanding nominal margin debt to increase over time, it is not normal for the use of margin debt to skyrocket in a short period of time. There have been three instances since 1995 where the use of the debt margin has jumped by at least 60% in any given year. Two of these cases occurred just before the dot-com bubble burst and the financial crisis began. The third instance is in 2021.
The chart would appear to be a set for a large but healthy pullback in the S&P 500.
A crash or strong correction is a great time to buy these foolproof stocks
While large bearish moves in the market are known to cause investor anxiety, they are also the perfect opportunity to leap forward. You see, if history is not the friend of the market in the short term, it is undoubtedly the best ally of investors in the long term.
For example, there has never been a continuous 20-year period in the last century where an S&P 500 Tracking Index would not have generated a positive annualized total return for investors. A crash or a fix is simply an opportunity to buy large companies at a discount.
If this recent sell-off results in a crash or correction, the following three foolproof stocks can be bought with confidence.
Few stocks have generated more surefire returns for long-term investors than Warren Buffett’s conglomerate Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). Since taking office as CEO in 1965, Buffett has overseen an average annual return on the company’s Class A shares (BRK.A) of 20%. In total, and taking into account the cumulative return of Berkshire Hathaway, Buffett has created approximately $ 600 billion in shareholder value and has produced a return of approximately 3,300,000% in 56 years.
While there is a long list of reasons for Buffett’s success, his penchant for cyclical companies plays a big part. While the Oracle of Omaha is well aware that economic contractions and recessions are inevitable, it understands that booms tend to last much longer. Thus, he has filled Berkshire Hathaway’s investment portfolio with bank stocks, tech stocks and consumer staples that will thrive in a growing economy.
Another reason Berkshire Hathaway has generated such incredible returns is Buffett’s emphasis on dividend-paying stocks. Although Berkshire does not pay a dividend, it is on track to collect more than $ 5 billion in dividend income in 2021. That’s a return of almost 5%, compared to the base cost of Berkshire’s holdings. Since dividend-paying stocks are almost always profitable and proven, they are what Buffett looks for in long-term equity.
Long story short, riding Buffett’s ponytails has often been a smart move.
Another foolproof stock that is continually delivered to its shareholders and would be perfect to buy in a stock market crash is Salesforce.com (NYSE: CRM), which provides software solutions for cloud-based customer relationship management (CRM).
For those of you unfamiliar with CRM, it’s used by businesses with direct contact with consumers to improve customer relationships and drive sales. It can be used to manage service or product issues, oversee online marketing campaigns, and run predictive sales analytics of an existing customer base. What’s particularly remarkable about CRM software is that it finds its place in non-traditional industries, such as finance and healthcare.
Cloud-based CRM software offers double-digit growth potential until at least the mid-decade, and Salesforce is at the center of this rapidly growing trend. According to IDC, Salesforce controlled 19.5% of global CRM spend in 2020, which is one percentage point higher than the share Oracle, SAP, Microsoft, and Adobe owned last year on a combined based. A little bit of market turmoil does not alter the demand for CRM software solutions or weaken Salesforce’s dominant market share.
In addition, CEO Marc Benioff was an expert in acquisitions. The buyouts of MuleSoft, Tableau and, more recently, Slack Technologies have enriched the company’s cloud-based ecosystem and are expected to more than double annual sales to $ 50 billion over the next five years. Any discount investors can get on Salesforce shares should be considered a gift.
A third foolproof stock to buy in the event of a stock market crash or correction is Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), the parent company of Internet search engine Google and streaming content provider YouTube.
When it comes to global internet search, there is Google and everyone. The thing is, “everyone” barely moves the needle. According to GlobalStats, Google accounted for 92% of the global search engine market in September. Looking back two years, it’s pretty much the same, with Google owning 91% to 93% of global internet searches. As the go-to benchmark for advertisers, Alphabet’s Google benefits tremendously from long periods of economic expansion in the United States and around the world.
What could be even more exciting than Alphabet’s true monopoly on internet research are the company’s rapidly growing ancillary projects. Streaming service provider YouTube saw advertising revenue increase 84% in the second quarter, with an annual sales rate reaching $ 28 billion. YouTube has quickly become one of the most visited social sites on the planet.
Meanwhile, Google Cloud saw sales growth of 54% in the quarter ended in June and now boasts an annual execution rate of more than $ 18 billion in sales. Google Cloud is the third largest player in cloud infrastructure and is expected to become a major source of operating cash for Alphabet over time. There is absolutely no reason Alphabet should not be on your buying list if the market collapses or corrects itself.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.