The S&P 500 is up more than 200% since the end of 2008, and the bull market is now the second-longest on record. With stocks flirting with new highs daily, it's reasonable to expect a pull-back at some point, and if so, then our Motley Fool contributors think you'll want to own Netflix (NASDAQ:NFLX), Caretrust REIT Inc (NASDAQ:CTRE), and Celgene's (NASDAQ:CELG) shares.
You'll want to own Netflix in the next crash
Anders Bylund (Netflix): Yes, I am suggesting that a high-growth stock could help you through the next recession. Yes, Netflix (NASDAQ:NFLX) is trading at 340 times trailing earnings and thus seems ripe for a plunge if you just look at it the wrong way.
And yes, I am dead serious about all of this.
By its disruptive nature, Netflix has always been tagged as a dangerous stock to own. That's true today, based on sky-high valuation ratios and a world full of head-to-head competitors. It was also true in 2008 due to competition (again), slowing subscriber growth, and a lack of business-grade respect for the newfangled digital streaming service.
So, let's say you owned some Netflix stock at the start of 2008. Here's what happened over the following two years:
Market indices dipped as much as 50% lower before starting their recovery, which still had a long way to go by the end of that chart. Netflix dropped 23% for a very short while, bounced back to a positive return by the end of 2008, and more than doubled a year later. The end of the world hardly bothered the digital video pioneer. And if you held on to those late-2007 shares through thick and thin, you'd be sitting on a 4,000% return today, less than a decade later.
It's fair to note that Netflix traded at just 30 times trailing earnings back then, of course. The P/E ratio has skyrocketed more than tenfold from that old benchmark, raising the risk of a sudden collapse.
To that point, you should know that Netflix has been running on a nearly breakeven budget while building out a global network of streaming services. That build-out is now complete, and management has promised to refocus on generating profits again. Based on that guidance, your average Wall Street analyst sees Netflix's earnings rising from $0.43 per share in 2016 to $1.11 per share this year, and $2.00 per share in 2018.
As the bottom line grows, the P/E ratio should come tumbling down. Netflix actually has a lot of control over this crazy valuation metric, which makes the stock look much riskier than it actually is. Breathe easy, cowboy.
If you truly expect a big market crash someday soon, I would suggest building a Netflix position early and keep some powder dry for picking up additional shares on the cheap as the initial panic sets in. Again, see 2008 for examples of this.
A business that's not economy-driven
Jason Hall (Caretrust REIT Inc): The first thing any stock investor needs to recognize is this: Every stock can go down, and often for no discernible reason, in the short term.
This is because the market isn't always driven by rationality, especially in a market crash, where millions of people can sell tens of billions of dollars in shares of excellent companies, simply because they are afraid of a market crash. The irony, of course, is that it's exactly their behavior -- selling in fear -- that can cause a market to crash, and keep it down for a long time.
But if the market is crashing because of economic weakness, something that can cause stocks to say down for years at a time, investors who own shares of companies with less exposure to a weak economy can make for excellent long-term investments. And Caretrust REIT is exactly this kind of company.
Caretrust owns rehabilitation and senior housing facilities, an area where there is expected to be steady, growing demand over the next 20-plus years, as tens of millions of baby boomers reach retirement age. Since these facilities aren't a product of economic demand, but of medical necessity, owning a stake in Caretrust is a great way to offset the risk of too much exposure to economic recession while gaining exposure to a major trend with big implications in the retirement of the baby boomer generation.
Factor in a dividend yielding over 4% at recent prices (and likely to increase over time), and Caretrust is an excellent stock to own before, during, and after a market crash.
Todd Campbell (Celgene): At first blush, you might think I'm crazy for recommending a biotech stock, but stick with me for a minute, and I think you'll agree that owning a top-tier growth stock like this can make sense.
Since markets don't go up or down in a straight line, it stands to reason that stocks could drop after their big runs higher. However, stocks can climb further than pundits think, and the best growth stocks often lead post-drop recoveries.
Because no one knows when a market drop or recovery might happen, I think investors ought to focus on owning great companies that market products untied to economic whims and whispers, and that's why I like Celgene.
Celgene's best-seller is Revlimid, a commonly used first- and second-line multiple myeloma therapy, and last year, Revlimid's sales totaled $7 billion, or roughly 62% of Celgene's sales. The company also markets the third-line multiple myeloma blockbuster drug Pomalyst and pancreatic cancer drug Abraxane. Later this year, Celgene could also win FDA approval of a new leukemia drug that it co-developed with Agios.
The company also markets fast-growing psoriasis drug Otezla, and it hopes to file for FDA approval soon for a new multiple sclerosis medicine that, if approved, could provide considerable sales and profit upside.
Overall, Celgene expects sales of $21 billion in 2020, and that's pretty remarkable given this year's expectations are for sales of $13 billion. Clearly, a lot is going right for this company, and I think that makes this stock a great one to own through good and bad times.
Anders Bylund owns shares of Netflix. Jason Hall owns shares of CareTrust REIT and Netflix. Todd Campbell owns shares of Celgene. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Celgene and Netflix. The Motley Fool has a disclosure policy.