You might not like what I'm about to say, but the fact of the matter is that stock market crashes are a normal and unpreventable part of the investing cycle.
Historically, a stock market correction of at least 10% has occurred, on average, every 1.84 years in the broad-based S&P 500 since 1950 -- and not all of these declines have proved orderly. We're never going to know ahead of time when a crash or correction will occur, how long it'll take to find bottom, or how steep the decline will be.
The one thing we do know about stock market crashes is that they roll out the red carpet for long-term investors to buy into great companies on the cheap. Eventually, another stock market crash is going to occur -- and when it does, you'll want to have cash at the ready to buy into a handful of time-tested businesses.
If the market were to crash sooner than later, consider the following four companies as the perfect stocks to buy.
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Alphabet
Dominant businesses stay dominant, even when a stock market crash occurs. That's why Alphabet (GOOG -1.80%) (GOOGL -1.82%), the parent company behind Google internet search and streaming platform YouTube, should be scooped up by investors on any significant weakness.
Just how dominant is Google's search platform? According to data from GlobalStats, Google maintained a 91.9% to 93% share of global search over the trailing 12-month period. Advertisers know there isn't a search platform out there that's going to give them a better opportunity to get their message in front of more targeted consumers. Though stock corrections can be painful, Alphabet's leadership in search-based advertising isn't going to fade because of a short period of emotion-based investing.
Plus, Alphabet has more going for it than just search-based advertising. YouTube is now one of the three most-visited social media destinations on the planet, and Google Cloud is the company's fastest-growing operating segment. In spite of the weakest economic growth for the U.S. economy in decades during the second quarter, Google Cloud sales hit $3 billion for the first time ever and jumped 43% from the prior-year period.
With an operating cash flow explosion on the horizon, Alphabet is a smart stock to buy during a crash.
Image source: Getty Images.
Freshpet
I've said it before, and I'll say it again: Never bet against the companion animal industry. There are almost 85 million households in this country that own a pet, and we haven't seen a year-on-year decline in U.S. pet expenditures for at least a quarter of century. Per the American Pet Products Association, pet expenditures are forecast to hit $99 billion in the U.S. this year, with pet food and treats accounting for an estimated $38.4 billion.
This all means one thing: Freshpet (FRPT -2.67%) would be a screaming buy during a stock market crash.
Freshpet is a company that manufactures and sells organic and natural companion pet foods and treats. Just as organic and natural foods moved the needle in the growth department for grocers over the past decade, Freshpet is aiming to capitalize on people's willingness to spend more on higher-quality foods to ensure the well-being of their pets. Since most pet owners view their pets as members of the family, it's a genius strategy.
Even with the U.S. economy trudging its way through the coronavirus disease 2019 (COVID-19) economic downturn, Freshpet delivered 33% net sales growth in the most recent quarter. The company is seeing upticks in repeat business and retail locations served, yet is still in the early stages of really marketing its brand to the public. In other words, it has sustainable double-digit growth potential.
Image source: Getty Images.
Bristol Myers Squibb
Healthcare stocks are often an excellent place to park your money during a stock market crash given the inherently defensive nature of the sector. Since we don't get to choose when we get sick or what ailment(s) we develop, there's always a steady amount of demand for drug developers and device makers regardless of how well or poorly the stock market is performing. Should emotions get the better of investors, drug developer Bristol Myers Squibb (BMY 0.48%) becomes the perfect stock to buy.
Although it's a Big Pharma stock, Bristol Myers does have a number of growth catalysts in its portfolio. In Nov. 2019, it completed the acquisition of Celgene, which brought one of the top-selling drugs in the world, Revlimid, into the fold. Multiple myeloma drug Revlimid has enjoyed label expansion opportunities, longer duration of use, increased demand due to improved cancer screening diagnostics, and a higher list price. For Bristol Myers Squibb, Revlimid is fully capable of nearing $12 billion in full-year sales in 2020.
In terms of organic growth opportunities, Bristol Myers has seen Eliquis (developed in partnership with Pfizer) blossom into the leading oral anticoagulant in the country. Meanwhile, cancer immunotherapy Opdivo is being tested in dozens of monotherapy and combination-based clinical trials, and looks to be on track to deliver close to $7 billion in full-year sales.
As the frosting on the cake, Bristol Myers Squibb is also parsing out a 3% yield. It's a safe stock for investors to add during a stock market crash.
Image source: Getty Images.
NextEra Energy
Have I mentioned the importance of buying into defensive sectors? A final stock that could be perfect for your portfolio during a stock market crash is electric utility stock NextEra Energy (NEE -0.52%).
I know what you're probably thinking: "Aren't electric utilities slow-growing, boring businesses?" Generally speaking, yes they are. But NextEra Energy isn't like a lot of its peers, and is perfectly capable of delivering sustainable superior growth.
You see, NextEra Energy has heavily invested in renewable energy projects. No utility in the country generates more capacity from solar or wind power. While these investments haven't been cheap, they've placed NextEra at the edge of the innovation curve in the utility space. As a result, its electricity-generation costs are much lower than its peers, which is what's allowed the company to grow earnings by a high single-digit percentage over the past decade.
To boot, lending rates should remain historically low for, at minimum, the next two or three years. Since NextEra uses debt to finance many of its renewable energy projects, it'll remain incented to continue making the transition away from fossil fuels and toward wind and solar.
Furthermore, keep in mind that NextEra's traditional electric operations are regulated. While it can't just pass along rate hikes at its leisure, it also means the company isn't exposed to potentially volatile wholesale pricing.
NextEra Energy might operate in a boring industry, but it can deliver anything but boring returns for its shareholders.
