Longtime investors have seen some crazy things transpire over the years, but nothing could have prepared them for the volatility caused by the coronavirus disease 2019 (COVID-19) pandemic. With the first-half of 2020 now in the books, we've witnessed the benchmark S&P 500 lose more than a third of its value, as well as deliver its best single quarter performance since 1998 in the second quarter.
The fact of the matter is, no one really knows what to expect in the near-term. While it's possible that we could see a continued rally in all of the major indexes, there are more than enough reasons for a second stock market crash to ensue.
However, stock market crashes don't have to be an event to fear. They are, in fact, historically a great opportunity for long-term-minded investors to pick up great companies on the cheap. Perhaps the hardest question to answer is, what stocks to buy when a stock market crash does occur?
To that end, I'd suggest that investors not overlook value stocks and consider companies that can be absolute moneymakers in any economic environment.
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Alexion Pharmaceuticals
One of the safest places to consider putting your money to work when the stock market rolls over is the healthcare sector. Since people don't get the luxury of deciding when they get sick or what ailment(s) they develop, it means drug and device makers see consistent demand and cash flow in any economic environment. That's why Alexion Pharmaceuticals (ALXN) is a no-brainer buy during stock market crashes.
Alexion is an ultra-rare-disease drug developer, which means it takes on significant risk when angling for indications with a small patient pool, but can reap immense rewards when successful. The company's lead drug for more than a decade, Soliris, was once the highest-priced drug in the world, and it continues to face virtually no competition in its approved indications. Label expansion opportunities have allowed Soliris to grow to $4 billion in yearly sales on an extrapolated basis (based on Q1 2020 sales).
Interestingly, though, it's not Soliris that's the future for Alexion. Rather, it's Ultomiris, which is a next-generation therapy that's designed to replace Soliris over time. Ultomiris is a recycled protein that only needs to be administered once every eight weeks, which is far less frequent than the injections needed every two weeks with Soliris. More important, it'll make Ultomiris the clearly superior therapy, even if generic entrants swoop in when Soliris loses its exclusivity. In other words, Alexion bought itself another decade of cash flow protection by developing Ultomiris.
With adjusted earnings well above $2 billion annually and growing by a high-single-digit percentage, Alexion is a moneymaker stock you can count on during periods of panic.
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AT&T
If you want to talk about moneymaker stocks that won't let long-term investors down during times of intense panic, take a hard look at telecom giant AT&T (T 1.30%). Even though its high-growth days ended a long time ago, it's gifting investors a 6.8% dividend yield that'll double their money (if reinvested) in less than 11 years, and is expected to generate more than $40 billion in operating cash flow on an annual basis. It's the perfect definition of a cash-cow stock.
Despite being a mature company, AT&T does offer a couple of growth catalysts that should allow its earnings per share to head higher by a mid-single-digit percentage in the years to come. For one, there's the rollout of 5G networks. It's been about a decade since the last major wireless infrastructure upgrade, which means AT&T should benefit from an ongoing and multiyear uptick in data usage from its retail and enterprise customers. That's great news considering that wireless data comprises the bulk of the company's margins in its wireless segment.
AT&T should also benefit from the push toward streaming content. Though cord-cutting has been a persistent problem for its DirecTV subsidiary, the launch of HBO Max offers an opportunity for AT&T to offset or even reverse its cable-based losses.
Also, don't overlook AT&T's balance sheet-improving initiatives. Management has plans to reduce existing debt levels by selling noncore assets, and the company recently halted share buybacks to ensure the continuity of its dividend, which has been raised for 36 consecutive years. AT&T is a bargain stock that's perfect for a fear-filled stock market.
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U.S. Bancorp
Generally speaking, investors tend to run away from big banks when stock market crashes rear their head. But that's not a wise idea when you're dealing with the cream of the crop of moneymaker banks, U.S. Bancorp (USB -0.20%).
To be perfectly clear, the uncertain environment we're in now is going to weigh on all banks for the next year or three. Low interest rates have a negative impact on interest income for banks, while the current recession suggests that mortgage, auto, and personal loan delinquencies could rise. But none of this is news to U.S. Bancorp. This is a bank that's always avoided riskier derivative investments, which is a big reason it emerges from recessions a lot faster than its peers.
Additionally, it doesn't hurt one bit that U.S. Bancorp has consistently produced the highest return on assets (ROA) of any big bank. This superior ROA, which tallied roughly 1.6% throughout much of 2019, is why U.S. Bancorp has regularly been valued at twice its book value, which is a pretty big premium for a bank stock. For context, though, U.S. Bancorp is only valued at 17% above its book value right now, which is cheapest valuation relative to book in more than a decade.
It should also be noted that U.S. Bancorp has done a standup job of controlling its operating expenses by pushing its members to transact online or with their smartphones. This means fewer physical branches are needed, which has lowered the bank's operating expenses.
U.S. Bancorp is fully capable of $3 billion to $6 billion in annual adjusted profit, which makes it a moneymaker stock you won't want to overlook during a crash.
