Although Halloween is only a once-yearly event, it's been a frightening month for the U.S. stock market and investors. Thus far in October, the iconic Dow Jones Industrial Average has logged its third- and sixth-largest point declines in its 122-year history. Additionally, eight of the 18 biggest point declines in the Dow's storied history have occurred since the beginning of February.
Some folks would simply chalk this up to a volatile year. Others, however, see clear signs that an extended period of economic expansion may be nearing its end. While it's impossible to predict when we'll enter a slowdown in growth or the next recession, we know for a fact that recessions are inevitable.
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In recent months, interest rates have been steadily rising, which we know should put a damper on corporate lending activity, and wage inflation is finally beginning to pick up, which may encourage the Federal Reserve to remain aggressive with interest rate hikes. We're also seeing weakness in new home sales in key markets (ahem, California), and facing the uncertainty of the midterm elections that could dictate the ability of Congress to pass fiscal policy over the next two years.
These are the industries to own if the stock market continues to tumble
In other words, it's very possible that the stock market's latest swoon could continue. And if it does, the following three industries could be a smart place to park your cash.
1. Pharmaceuticals
Although pharmaceutical stocks have mostly trended lower in recent weeks with the rest of the market, they're a generally smart bet during a correction, bear market, and/or recession. The reason is simple: People don't stop getting sick just because economic growth slows down. Since we can't control when we get sick or what ailment we're dealt, established drug companies tend to enjoy consistent demand and pricing power.
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One pharmaceutical stock to consider is Dow component Merck (MRK -0.05%). Long known as something of a "boring" investment, Merck has really turned heads thanks to its cancer immunotherapy drug Keytruda. Immunotherapies work with a patient's immune system to help identify and eradicate cancer cells, leaving normal tissue unharmed. Merck's blockbuster immunotherapy wound up succeeding where its biggest competitor, Bristol-Myers Squibb's Opdivo, failed: in advanced non-small-cell lung cancer. This should pave a path for what could be billions in annual sales.
Between Merck's existing oncology portfolio and burgeoning pipeline, as well as its 3.1% dividend yield, there should be plenty for investors to cling on to if the stock market keeps tumbling.
2. Electric utilities
Another smart move to consider is buying stock in an electric utility. Companies that provide a basic-need good or service are typically solid investments in any environment because demand for their product remains predictable. Should economic growth slow, or investors lose their appetite for growth stocks, then the value and consistency proposition provided by electric utilities could be the answer.
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The electric utility that's worth a closer look just happens to be the largest in the industry: NextEra Energy (NEE 1.36%). NextEra has been a pioneer in adopting clean-energy technology. It's a leader in annual wind and solar production, which should allow its electricity production costs to consistently undercut its peers.
Plus, NextEra's management team was smart and undertook these expensive projects to build wind and solar farms when interest rates were at or near historic lows. There's no mistaking that NextEra is lugging around quite a bit of debt, but it's all at manageable interest rates, and the company's cash flow is expected to grow by a double-digit percentage per year.
Currently sporting a 2.6% dividend yield, NextEra Energy is a good bet to keep growing its top and bottom lines, regardless of how the stock market or U.S. economy perform.
3. Gold and silver miners
Finally, it's never a bad idea to consider buying into gold and silver mining stocks when fear builds and the stock market tumbles. Precious metals have historically performed well either during or immediately following a recession. What's more, following a multiyear decline in precious metals between 2012 and 2015, many in the industry have reined in costs and are now focused on only their most profitable existing mines and projects.
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Feel free to call me biased, but personal portfolio holding SSR Mining (SSRM 2.95%) should benefit if the stock market continues to falter. Putting aside an expected rise in gold and silver prices that often accompanies a period of heightened volatility, SSR Mining has delivered improved gold production in each of the past two years at the Seabee mine. It also has a plan in place to see its flagship Marigold mine in Nevada boost its annual output by about 30% to 265,000 ounces of gold by 2021.
SSR Mining is also in the process of bringing its 75%-25% joint venture with Golden Arrow on line. Based in Argentina, the Chinchillas Project will allow SSR Mining to diversify its portfolio by adding silver production.
As someone who closely monitors the gold and silver mining sector, I believe a multiple of 10 times cash flow per share tends to be "fair" valuation. SSR Mining is valued at less than five times projected 2021 cash flow per share, making it an attractive value in an otherwise topsy-turvy market.
