A stock market crash is inevitable: 4 sure-fire stocks to buy when it happens
These are the three words that can ruin an investor’s day: stock market crash.
While talking about a stock market crash might be considered taboo, the point is: a stock market crash is on his way. We may not be able to determine when this will happen, but the story is pretty clear that crashes and corrections are inevitable parts of the investment cycle.
All signs point to a crash or a strong fix in the not-so-distant future
As an example, we can look back over six decades and find that no rebound from a bear market bottom has ever been more robust or fluid. In the three years since each of the previous eight bear market lows, there have been one or two double-digit percentage declines in the benchmark. S&P 500 (SNPINDEX: ^ GSPC). In other words, the rebound from a bear market is a process that does not translate into upward linear movements, as we have seen over the past 15 months.
If you need more evidence, take a closer look at the S&P 500 Shiller Price / Earnings (P / E) ratio, which examines inflation-adjusted earnings over the past 10 years. As of Monday, June 21, her Shiller P / E of 37.5 is 123% above the 151-year average. Even more telling, the S&P subsequently lost at least 20% of its value in the previous four instances where the Shiller P / E crossed 30 and held it. In this case, the story is definitely not on the market side.
The use of the margin is also of concern. Market analysis firm Yardeni Research notes that margin debt in May 2021 hit a new high of nearly $ 862 billion, and is up about 60% from the previous year period. . In the past 25 years, there have only been three instances where margin debt has increased 60% year over year. In the previous two cases (the dot-com bubble and the Great Recession), the S&P 500 lost about half of its value.
All signs suggest that sooner or later the stock market will either collapse or correct itself sharply.
These foolproof actions can make you rich
While it can be confusing for some people, it is also an incredible opportunity. This is because crashes and fixes are usually short lived events. They also have a perfect track record of being eventually wiped out by bull market rallies. As long as you buy high-quality companies and hold onto your investments for the long term, steep declines are a great time to put your money in the stock market.
When the next crash inevitably comes, the next four foolproof actions should make investors a lot richer.
The idea of buying a business that relies heavily on advertising during times when the US economy may be in a recession may seem odd. But let me assure you, Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG) is exactly the type of dominant business you’ll want to add during times of heightened volatility.
Long-term investors buying Alphabet would benefit from two factors. First, recessions and crashes / corrections tend to be short lived. By comparison, periods of economic expansion typically last several years or even a decade. Alphabet is simply biding its time during these short downtrends, then enjoying double-digit growth and strong ad pricing power for its internet search platform Google during long-term expansions. According to GlobalStats, Google has controlled between 91% and 93% of the global Internet search share in the past two years.
The second reason Alphabet is a sure-fire stock to buy in a crash is its innovation. The YouTube content delivery platform is now one of the top three most visited social sites in the world. Meanwhile, its cloud infrastructure services segment, Google Cloud, is growing steadily by nearly 50% year-over-year. Google Cloud will be particularly useful by the middle of the decade, as higher margins for infrastructure services help catapult Alphabet’s operating cash flow.
Innovative industrial properties
Another sure-fire opportunity can be found with a cannabis-focused real estate investment trust (REIT) Innovative industrial properties (NYSE: IIPR). Innovative Industrial, or IIP for short, acquires medical marijuana cultivation and processing facilities for the purpose of leasing those assets for long periods of time.
One of the most obvious benefits of this strategy is that it generates very predictable cash flow. IIP owned 72 properties covering 6.6 million square feet of rental space in 18 states at the start of June. According to the company, 100% of its properties are leased with a weighted average lease of 16.8 years. It will likely take less than half that time for the company to receive a full return of its $ 1.6 billion invested capital. In addition, IIP passes on rent increases based on inflation to its tenants each year, ensuring a very modest level of organic rental growth.
In addition, Innovative Industrial benefits from the federal deadlock on cannabis banking reform. Since marijuana is illegal at the federal level, marijuana companies have struggled to access basic banking services. IIP solves this problem with its sale-leaseback program. With this program, IIP acquires properties from Multi-State Operators (MSOs) for cash and immediately leases the property it buys back from the seller. This innovative program provides MSOs with access to cash, while compensating long-term tenants of IIPs.
Health stocks are an incredibly smart place to put your money to work during a crash or abrupt correction. This is because the healthcare industry is defensive. Since we cannot choose when we get sick or what disease (s) we develop, there will always be a demand for drugs, devices and other health services, regardless of how well the patient performs. the economy (or the stock market). It’s a big reason UnitedHealth Group (NYSE: UNH) is such a winner.
Here’s a little something you might not know: Only a handful of stocks have generated positive total return (including dividends paid) in each of the past 12 years since the Great Recession. UnitedHealth Group is one of those 12, and its health benefits segment is a key reason. Providing health insurance often leads to predictable cash flow and strong premium pricing power. Even with this pricing power somewhat limited by the Affordable Care Act, UnitedHealth is attracting more than enough new members to remain a very profitable segment.
The other major growth driver for UnitedHealth Group is its health services subsidiary Optum. It provides everything from pharmacy benefit management services to data analytics used by hospitals and health-focused organizations. Optum has actually been UnitedHealth’s fastest growing operating segment, and it’s the best bet for delivering superior long-term operating margins.
A foolproof fourth stock that you can buy comfortably in the event of a stock market crash or sharp correction salesforce.com (NYSE: CRM), which provides cloud-based customer relationship management (CRM) software. It is used by direct-to-consumer businesses to capture customer information, manage product / service issues, manage online marketing campaigns, and even provide real-time predictive sales analytics.
By the middle of the decade, global CRM revenues are expected to grow by a small double-digit percentage each year. Salesforce, on the other hand, will grow even faster. CEO Marc Benioff predicts his company will grow its annual revenue from $ 21.3 billion in its most recent fiscal year to more than $ 50 billion in five years (fiscal 2026). It’s certainly easy to do when his company controls nearly 20% of global CRM revenue in the first half of 2020, per IDC. That’s more than its four closest competitors, combined!
Salesforce also has a knack for integrating acquisitions and using buyouts as a platform to expand its offerings or sell its solutions. He has a pending deal for $ 27.7 billion in cash and shares to acquire Slack Technologies. While this deal opens up a new revenue channel for Salesforce, it’s really about the new exposure to small and medium businesses, as well as the ability to use Slack’s platform to sell its CRM solutions.
In short, Salesforce won’t be fazed by a crash or short-term fix, making it a smart buy for investors.
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.