For some, the recent stock market volatility is a sign of a crash to come. While pulling your money out of the market is obviously one move you could make, so is investing in businesses that not only survive a downturn but thrive in one.
Three Motley Fool contributors see American States Water ( AWR 1.45% ), Cronos Group ( CRON 2.64% ), and Lockheed Martin ( LMT 2.33% ) as companies that are uniquely positioned to handle whatever the future throws at them, particularly if it is the next market crash.
Not your typical utility
Neha Chamaria (American States Water): If you're worried about a coming market crash, you can't go wrong adding a utility to your portfolio now. But wait, the utility stock I'm recommending today isn't like any other: It is among the handful of utilities to have become a Dividend King and has more than tripled total returns in the past decade. That's American States Water for you.
There are two things I particularly like about American States Water. First is its unbeatable dividend track record: The company has increased dividends for 64 straight years now. That makes it a highly bankable dividend stock even during market crashes.
Second is its growth potential. You see, while American States Water gets the bulk of revenue from providing regulated water services to the public, it also boasts 50-year contracts with the U.S. government to serve water needs of 11 military bases. This segment not only gives the company a unique edge over competitors but also adds a growth option to its portfolio.
American States Water aims to grow dividends by a more than 6% compound annual rate over the next five years, and the stock currently yields 1.6%. Even if the market tumbles and the economy slows down, being assured of a dividend hike this year and beyond from a stock that's more than tripled investors' money in the past decade isn't something you'd want to pass up.
Check out the latest American States Water earnings call transcript.
A counterintuitive defensive stock
George Budwell (Cronos Group): What's that you say? Buy shares in a commercially unproven marijuana company with a sky-high valuation ahead of a possible market crash? That's right. While Canada's Cronos Group certainly doesn't check any of the boxes of a traditional defensive stock, this mid-cap cannabis company should actually perform quite well moving forward -- regardless of the overlying market conditions.
Cronos' investing thesis has two key pillars. First off, the legal marijuana market is projected to expand at a compound annual growth rate of 34.6% for the next six years, according to a report by Grand View Research. And this astonishing growth estimate doesn't even include secondary cannabis markets like hemp oils -- an ancillary market that's set to explode higher following the passage of the 2018 Farm Bill in the United States. In short, Cronos, as a top cannabis company, should benefit enormously from this rising tide.
Secondly, Cronos' partnership with American tobacco titan Altria ( MO 1.43% ) instantly transformed the company into a top dog in this emerging space. The company now has one of the best balance sheets in the industry, a partner with the expertise to develop strong brand recognition in a field with literally thousands of nascent brands coming online, and a potential first-mover advantage when it comes to the high-value American cannabis market.
The bottom line here is that Cronos has a solid plan in place to deliver outstanding returns for investors in the years to come. That's why this marijuana stock arguably stands out as a top -- albeit unorthodox -- defensive play right now.
Check out the latest Cronos Group earnings call transcript.
Rich Duprey (Lockheed Martin): Lockheed Martin is the single largest defense contractor for the federal government; it generates virtually all of its revenue from Defense Dept. expenditures. Yet while it has a diverse range of aircraft and advanced technologies for the Army, Navy, Air Force, and Marines, most of its business stems from the F-35 fighter jet program, which represented 27% of Lockheed's revenue in the most recent quarter. It also receives contracts to supply U.S. allies.
Defense spending is not seen decreasing anytime soon, and even though President Trump has asked cabinet heads to submit proposals for cutting their budgets by 5%, he asked former Defense Secretary James Mattis to prepare a $750 billion budget for 2020, nearly a 5% increase from 2019's $716 billion budget.
Lockheed Martin also pays a generous $8.80 annual dividend that currently yields 3.3%. It just increased the payout 10% last September. The defense contractor is expected to earn $19.64 a share next year, and analysts see it growing earnings more than 45% over the next five years. If the market crashes, Lockheed Martin is one stock you'll want defending your portfolio.
Check out the latest Lockheed Martin earnings call transcript.