Over the past four months, investors have experienced about a decade's worth of volatility.
Panic and uncertainty tied to the coronavirus disease 2019 (COVID-19) pandemic initially pushed the broad-based S&P 500 into bear market territory in just 17 trading sessions. It ultimately took less than five weeks to knock off 34% of the widely followed index's value. These are the fastest bear market declines we've ever seen on Wall Street.
Image source: Getty Images.
But over the subsequent 11 weeks, the broader market proved unstoppable. As recently as last week, the S&P 500 had bounced more than 40% from its lows and appeared to have established a new bull market. Then Thursday, June 11, happened, and investors were quickly reminded that the coronavirus pandemic hasn't simply disappeared.
Historically speaking, a correction or crash following a major bounce from a bear market bottom is perfectly normal and expected. For investors, these setbacks often provide an excellent buying opportunity to pick up great businesses on the cheap.
Best of all, you don't need a mountain of cash to take hold of your financial independence. If you have $500 you can spare for investment purposes that won't be needed to pay bills or for emergencies, then you have more than enough to buy some of the best stocks during a correction.
Image source: Facebook.
One of the smartest moves you can make when the stock market heads south is to pick up shares of social media giant Facebook (META -10.56%). Although Facebook generates the vast majority of its revenue from advertising, and ad sales are likely to taper off during periods of economic weakness, a short time frame of weaker ad-sale growth should not scare investors away.
Think about it this way: Facebook has 2.6 billion monthly active users (MAU) and 2.99 billion family MAUs. A "family MAU" takes into account the number of MAUs on all of Facebook's platforms, including Instagram and WhatsApp. No matter how well or poorly the economy is performing, there isn't a platform out there that offers advertisers roughly 3 billion eyeballs. This makes Facebook the logical go-to for advertising, as well as gives the company incredible pricing power more often than not.
Perhaps the most exciting thing about Facebook is that its growth story is still in the relatively early innings. Despite monetizing Facebook and Instagram with ads, WhatsApp and Facebook Messenger haven't really been monetized yet in a meaningful way. Additionally, Facebook has only scratched the surface with the potential to utilize its platforms for payments, streaming, and other fee-based services.
In short, buying Facebook on any weakness tends to be a smart move for long-term investors.
Image source: Getty Images.
AT&T
There's perhaps nothing better than when boring businesses get beat up during a stock market correction. Businesses that are mature and slow-growing may not excite during periods of supercharged growth, but they almost always have time-tested businesses that can undoubtedly survive a recession. That's why AT&T (T -1.37%) and its 6.9% yield should be scooped up by investors.
As some of you may be well aware, the biggest catalyst for AT&T is the ongoing rollout of 5G infrastructure. While it'll be both costly and time-consuming to upgrade its wireless infrastructure, the benefits are clear. AT&T should expect a multiyear technology upgrade cycle and even higher data usage than was seen with 4G LTE networks. That's great news considering that AT&T's wireless division generates the bulk of its margin from data.
Investors should also count on AT&T to deliver healthy returns from its streaming offerings. Though cord-cutting remains an issue with more traditional services, such as DirecTV, the recent launch of HBO Max is expected to offset weakness from traditional cable services.
With AT&T recently shelving its share buyback program to preserve capital and its pristine dividend, income investors can sleep easy at night knowing they're netting nearly 7% annually on yield alone.
A jubilant Warren Buffett at his company's annual shareholder meeting. Image source: The Motley Fool.
Berkshire Hathaway
When it comes to surefire long-term winners, there's perhaps no investment that comes to mind more than Berkshire Hathaway (BRK.A -0.30%) (BRK.B -0.26%). Warren Buffett's conglomerate has averaged an annual return of 20.3% over the past 55 years, which is more than double the average annual return of the S&P 500, inclusive of dividends, over the same time frame.
By purchasing Berkshire Hathaway stock, investors are effectively making Warren Buffett their portfolio manager. Although diversification isn't exactly Buffett's forte, he does tend to align Berkshire's portfolio with the U.S. economy. This is to say that most of Berkshire's invested assets are held in traditionally cyclical sectors. While economic slowdowns are inevitable, one thing for certain is that the U.S. economy spends far more time expanding than contracting. That bodes well for the make-up of Buffett's investment portfolio.
Berkshire Hathaway is also historically inexpensive. Following Thursday's sell-off, it ended at just 17% above book value. By comparison, Berkshire has ended each of the past seven years valued between 31% and 59% above its book value. Perhaps it's no surprise then that the stock Buffett has been buying most recently is his own. If Buffett is spending billions buying back Berkshire stock, it's a big clue that investors shouldn't ignore.
Image source: Getty Images.
Bristol Myers Squibb
Another top-notch stock to consider adding to your portfolio during a correction is drug giant Bristol Myers Squibb (BMY -8.51%). Although growth stocks have run circles around value stocks over the past decade, it's tough to overlook a highly defensive juggernaut that's now valued at less than 8 times next year's earnings per share.
A big catalyst working in Bristol Myers' favor is the completion of its Celgene buyout in November 2019. Celgene's Revlimid, a cancer treatment most often associated with multiple myeloma, may well become the world's best-selling drug one day. It's protected from a flood of generic entrants through January 2026, and has benefited from a growing number of multiple myeloma cases, longer duration of use, label expansion opportunities, and regular price hikes. For Bristol, it's just the type of cash cow investors can come to appreciate.
Additionally, it would be a mistake to overlook Bristol Myers Squibb's cancer immunotherapy line -- specifically Opdivo. While Opdivo disappointed when it failed to hit the mark in non-small cell and small cell lung cancer trials, it's been approved to treat a laundry list of indications and is already topping $7 billion in annual sales. Considering that Opdivo is currently being studied in dozens of ongoing clinical trials, a push beyond $10 billion a year in sales from label expansion is quite feasible.
