Last Monday, July 19, investors suffered a mini market correction when the Dow Jones Industrial Average at more than 700 points (2.1%), the S&P 500 fell 1.6%, and the Nasdaq Composite sank 1.1%. By the weekend all indices had regained most of what they had lost, but it was possible that anyone with money in the market would think this could be the start of the big drop.
Let’s face it: there is going to be a market correction somewhere, sometime. It’s just a part of the normal stock market cycle. Since no one knows when this will happen, it’s best to always be prepared for it. Below, three Motley Fool contributors discuss where to put your hard-earned money so you can be prepared for that inevitable day.
A king among the survivors of the market
Eric Volkman: One type of business most likely to emerge relatively intact from a stock market crash is a supplier of essential goods.
No matter the state of the economy, people will always need toothpaste and adhesive bandages. That is why my choice would be a company that not only thrives by selling such products, but has also survived many economic peaks and valleys in its long existence: Johnson & johnson (NYSE: JNJ).
The company is unique among blue chip stocks as it is a pharmaceutical company that also straddles the consumer goods sector. Its consumer health unit – the one that houses medicine cabinet staples such as bandages and Listerine – is responsible for around 16% of its revenue.
The market for these essential products is quite strong and is helping to smooth the results of the larger and more varied pharmaceutical segment. It also allows money to flow in and is one of the main reasons the business is such a cash-generating monster year after year.
Speaking of pharmaceuticals, Johnson & Johnson continues to be a leading player in this segment.
Its single-dose coronavirus vaccine is one of only three approved by the United States Food and Drug Administration, and the only single solution of the trio. While recent research from the company and outside entities clashes over the effectiveness of the currently rising delta variant vaccine, the company’s vaccine remains a powerful weapon against the spread of the coronavirus.
And the company is not ignoring the business opportunities available to it. A notable activity for Johnson & Johnson of late has been medical devices, with sales of which jumped 63% in the company’s second quarter to nearly $ 7 billion. Medical devices now represent nearly a third of the company’s total turnover.
Another compelling reason to take refuge with Johnson & Johnson before and during a stock market crash is its rock-solid dividend, which currently pays a respectable 2.5%.
Johnson & Johnson is a Dividend King, one of the few S&P 500 stocks that have increased their distribution at least once a year for at least 50 consecutive years. Consider how difficult it is to run a successful business even for a few years in a row – a business that is successful enough to pay a dividend for more than half a century is a successful and very reliable business, and should provide a lot of input. shelter from a collapsing market.
A money-making machine, even in tough times
Barbara eisner bayer: When I think about surviving a stock market crash, I look for a company with two attributes: the ability to survive relatively unscathed and the ability to keep paying a dividend so that my stocks generate cash no matter what happens on Wall Street. . Innovative industrial properties (NYSE: IIPR) has both characteristics.
First, the company is a real estate investment trust (REIT), which is required to pay out at least 90% of its taxable income to investors as a dividend. And second, it’s in a relatively recession-resistant industry – marijuana. During the coronavirus pandemic in 2020, legal pot sales hit a record high of $ 17.5 billion, a 46% increase from the previous year. Apparently, when the going gets tough, the tough guys get high.
IIP doesn’t sell marijuana – instead, it owns properties that grow and process pot, then rent them out for long periods of time. As of June, the company had 72 properties in 18 states, including some of the largest cannabis markets in the United States such as California, Florida, Illinois and Pennsylvania. All of its spaces are currently leased, with a weighted average lease term of 16.8 years. IIP’s activity is very stable and counts among its clients young talents such as Green thumb industries and Cresco Laboratories. If one of them goes bankrupt, IIP can easily rent that space to another rising star.
Beyond its dividend, which currently yields 2.77%, IIP is growing. And growing. In the first quarter of 2021, it announced a 103% improvement in turnover compared to the quarter of the previous year. Adjusted Operating Funds (AFFO), which investors see as a more accurate indicator of growth for REITs, also exploded to $ 38.4 million. This is a significant increase from $ 17.8 million in the previous quarter. And net profit was more than double what it was in the first quarter of the previous year.
With companies like this in my stock portfolio, I can emotionally weather any downturn, recession, or market crash – without turning to grass for support.
Sometimes the best offense is a good defense
Chuck saletta: When it comes to dealing with a stock market crash, one of the most important investment tools you can have at your disposal is hard cash. From an absolute return standpoint, cash offers a terrible return most of the time, but during a stock market crash, its value and role shines brightly.
For a prime example of the role cash plays in a crash, look no further than Warren Buffett during the 2008 financial crisis. As the world panicked and funding generally dried up, Buffett had billions of dollars of cash available to him on his company’s balance sheet. He used this money on terms that were only available to him because the market was collapsing and funding was drying up.
And what did he buy? In general, stocks and warrants of companies whose operations were quite solid overall, but which were at risk in the short term because they needed cash and could not get it otherwise. The lesson is clear: As maligned as it is and as unprofitable as cash when times are right, in the event of a panic it can be an incredibly powerful investment tool to have at your disposal.
Of course, we mere mortals will probably never see the billions of dollars Buffett has at his disposal, but we can still see incredible value in having the money at our disposal. First, stock market crashes and job losses often go hand in hand. If you lose your job around the time of the next stock market crash, having cash can save you from having to sell your stocks when the market is down just to cover your bills. Not having to sell low is key to participating in any recovery that may follow.
Almost equally important, stock market crashes often give investors their best chance to buy solid companies at discounted prices. Imagine buying a powerful bank like Bank of America (NYSE: BAC) for less than $ 4 a share. It’s unthinkable today, but in February and March 2009 – in the depths of this financial crisis – it was quite possible to do it.
No, investors weren’t getting a Buffett-style deal, but they still got amazing sale prices that were only available if they had hard cash.
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 heterogeneous! 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.