They’re the three words that can ruin an investor’s day: stock market crash.
Although talking about a stock market crash might be considered taboo, the fact is: A crash is on its way. We might not be able to pinpoint when it’ll happen, but history is pretty clear that crashes and corrections are inevitable parts of the investing cycle.
All signs point to a crash or steep correction in the not-so-distant future
As an example, we can look back more than six decades and see that no rebound from a bear-market bottom has ever been this robust or smooth. In the three years following each of the previous eight bear-market bottoms, there were either one or two double-digit percentage declines in the benchmark S&P 500 (SNPINDEX:^GSPC). In other words, rebounding from a bear market is a process that doesn’t result in straight-line moves higher, which is what we’ve witnessed over the past 15 months.
If you need more evidence, take a closer look at the S&P 500’s Shiller price-to-earnings (P/E) ratio, which examines inflation-adjusted earnings over the previous 10 years. As of Monday, June 21, its Shiller P/E of 37.5 is 123% higher than the 151-year average. Even more telling, the S&P has subsequently shed at least 20% of its value in the previous four instances where the Shiller P/E has topped 30 and sustained it. In this instance, history is most definitely not on the market’s side.
The use of margin is equally concerning. Market analytics company Yardeni Research notes that margin debt in May 2021 climbed to a new high of almost $862 billion, and is up around 60% from the prior-year period. Over the past 25 years, there have been only three instances where margin debt increased by 60% on a year-over-year basis. In the previous two instances (the dot-com bubble and the Great Recession), the S&P 500 went on to lose around half its value.
All signs are suggesting that, sooner rather than later, the stock market is going to crash or correct steeply.
These surefire stocks can make you rich
Though this might be unnerving to some folks, it’s also an incredible opportunity. That’s because crashes and corrections are usually short-lived events. They also have a perfect track record of eventually being erased by bull market rallies. As long as you’re buying high-quality companies and holding on to your investments for the long term, steep declines represent the perfect times to put your money to work in the stock market.
When the next crash does inevitably arrive, the following four surefire stocks should make investors a lot richer.
The idea of buying a company that relies heavily on advertising during periods when the U.S. economy could be in recession might sound odd. But let me assure you, Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) is exactly the type of dominant company you’ll want to add during periods 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 usually last multiple years, if not a decade. Alphabet simply bides its time during these short downtrends, then basks in double-digit growth and strong ad-pricing power for its Google internet search platform during long-winded expansions. According to GlobalStats, Google has controlled between 91% and 93% of worldwide internet-search share over the past two years.
The second reason Alphabet is such a surefire stock to buy during a crash is its innovation. Content-streaming platform YouTube is now one of the three most-visited social sites in the world. Meanwhile, its cloud infrastructure services segment Google Cloud has been consistently growing at close to 50% on a year-over-year basis. Google Cloud will be especially helpful by mid-decade, with the higher margins from infrastructure services helping to catapult Alphabet’s operating cash flow.
Innovative Industrial Properties
Another surefire opportunity can be found with cannabis-focused real estate investment trust (REIT) Innovative Industrial Properties (NYSE:IIPR). Innovative Industrial, or IIP for short, acquires facilities for growing and processing medical marijuana with the purpose of leasing these assets out for long periods of time.
One of the more obvious benefits of this strategy is that it generates highly predictable cash flow. IIP owned 72 properties spanning 6.6 million square feet of rentable space in 18 states as of the beginning of June. According to the company, 100% of its properties are leased with a weighted-average lease of 16.8 years. It’ll likely take less than half this time for the company to receive a complete payback on its $1.6 billion in invested capital. Plus, IIP passes along inflation-based rent hikes annually to its tenants, ensuring a very modest level of organic rental growth.
What’s more, Innovative Industrial is benefiting from federal gridlock on cannabis banking reform. Since marijuana is illegal at the federal level, pot companies have struggled to gain access to basic banking services. IIP resolves this issue with its sale-leaseback program. With this program, IIP acquires properties from multistate operators (MSO) for cash and immediately leases the property it buys back to the seller. This innovative program gives MSOs access to cash, while netting IIP long-term tenants.
Healthcare stocks are an incredibly smart place to put your money to work during a crash or steep correction. That’s because the healthcare sector is defensive. Since we don’t get to choose when we get sick or what ailment(s) we develop, there will always be demand for drugs, devices, and other healthcare services no matter how well or poorly the economy (or stock market) is performing. 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 delivered a 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 bringing in more than enough new members that it remains a very profitable segment.
The other major growth driver for UnitedHealth Group is its healthcare services subsidiary Optum. It provides everything from pharmacy-benefit manager services to data analytics used by hospitals and health-centric organizations. Optum has actually been UnitedHealth’s faster-growing operating segment, and it’s the better bet to deliver superior long-term operating margins.
A fourth surefire stock you can comfortably buy if a stock market crash or steep correction strikes is salesforce.com (NYSE:CRM), which provides cloud-based customer-relationship management (CRM) software. It’s used by consumer-facing businesses to enter customer information, handle product/service issues, manage online marketing campaigns, and even offer predictive sales analysis in real time.
Through the midpoint of the decade, global CRM revenue is projected to rise annually by a low double-digit percentage. Salesforce, on the other hand, will be growing even faster. CEO Marc Benioff foresees his company increasing its full-year sales from $21.3 billion in its most recent fiscal year to more than $50 billion in five years (fiscal 2026). That’s certainly easy to do when his company controls nearly 20% of worldwide CRM revenue as of 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 cross-sell its solutions. It has a $27.7 billion pending cash-and-stock deal in place to acquire Slack Technologies. Though this deal does open a new revenue channel for Salesforce, it’s really all about the new exposure to small and medium-size businesses, as well as the ability to use Slack’s platform to cross-sell its CRM solutions.
In short, Salesforce isn’t going to be fazed by a short-term crash or correction, which makes it a smart buy for investors.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.