Investors just starting a portfolio and building a solid foundation for the future should be investing throughout the market's ups and downs. Dollar cost averaging is a good way to do that, whether it's automated through a 401(k) or by using a disciplined approach with a brokerage account. This strategy buys you more shares when prices are lower, and fewer when valuations are higher.
Once a foundation is set, investors can be pickier as to when to add available cash to their picks. There may be great companies you want to own, but you think have gotten too pricey to merit a purchase. But market corrections are huge moments of opportunity, and they happen quickly -- so stock pickers must be ready to react. Here are three stocks to consider buying in the next market crash.
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1. Pay yourself first with Johnson & Johnson
Adding funds to an established, blue chip, dividend payer like Johnson & Johnson (JNJ -0.69%) should be high on the list for novice and seasoned investors alike. As a global company with business spread among pharmaceuticals, medical equipment, and consumer health, it immediately adds diversification to a portfolio. Annual sales have grown from about $70 billion in 2015 to over $82 billion in 2019. Since it's a Dividend King, investors can feel confident that J&J will continue to increase its dividend, giving them an extra continuously growing income source. Including the one declared in April 2020, the company has increased its dividend for 58 straight years. It currently yields almost 2.5%, exceeding the S&P 500's long term average of under 2%.
Johnson & Johnson isn't just an income investment, though. It has increased adjusted operational earnings for 36 consecutive years, and has given shareholders an almost 12% total annual return over the most recent 10 year period. Its recently reported overall fourth-quarter sales increased 8.3%. Full-year 2020 sales grew less than 1% year over year, but that was mostly due to pandemic impacts on the company's medical device business.
With shares currently trading at about $163, the stock is near the high end of historical valuation. Its price-to-sales (P/S) ratio is at a 10-year high of over 5, and price-to-earnings (P/E) is a relatively lofty 29. It may not be flashy, but getting a discount on Johnson & Johnson shares would be a smart way to give your portfolio a long-term boost.
2. Make a renewable energy play with Brookfield Renewable
Many renewable energy names soared in 2020 as the transition from fossil fuels gained greater traction. The new administration in the U.S. very well may accelerate growth in domestic renewable production capacity, but the pendulum had swung away from fossil fuels globally long before the November election. Wind and solar generation grew more than any other renewable source in 2019, with solar growing 22% globally, according to the International Energy Agency (IEA). The independent agency believes solar is on track to average 15% annual growth through 2030. Wind capacity additions grew 8% in 2020 despite the COVID-19 pandemic disruptions, and its uptake is expected to accelerate in 2021.
A great way to invest in this arena is by putting your money with a proven capital allocator in the sector. Brookfield Renewable Partners (BEP) fits the bill. Brookfield Renewable has an investment portfolio of over 5,300 power-generating facilities globally. Its ownership and investments consist of hydroelectric, solar, and wind power.
Parent company Brookfield Asset Management funnels capital to several of its publicly traded entities, including Brookfield Renewable Partners. Utilizing available capital has led to solid returns for Brookfield Renewable over the last decade, including a more than 80% increase since the start of 2020.
But trailing-12-month (TTM) revenue is actually down 8% through the third quarter ended Sept. 30, 2020, and funds from operations (FFO) have decreased 17% in that time. The stock continues to gain because management is confident that it will continue to deliver 12% to 15% long-term returns based on its growth initiatives.
Feb. 2's $46 share price comes after the stock has moved up 88% since the start of 2020. But quarterly FFO -- a more appropriate measure of cash flow than earnings for a business of this type -- increased about half that much. Overall sector strength supports management's growth objectives, and if shares drop during a market downturn, investors would be wise to take advantage.
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3. Sprinkle in some speculation with Aphria
Canadian marijuana grower and distributor Aphria (APHA) has been strategizing its eventual move into the U.S. Investing based on that plan is certainly speculation, as the timing of federal marijuana legalization remains a question mark. But the number of states legalizing medical and recreational pot continues to grow.
In early November, Aphria announced it would spend $300 million to buy U.S. craft brewer SweetWater Brewing Company. In 2018, SweetWater released a hemp-inspired IPA called 420 Strain G13. The beer earned the title of top craft brand in the U.S. in its first 12 months on the market, proving that the beer business found its own place in the Green Wave.
For the year ended Dec. 31, 2019, SweetWater reported revenue of $67 million, adjusted earnings before interest, taxes, debt, and amortization (EBITDA) of $22 million, and a growth rate of twice the national craft beer market, according to the announcement. But Aphria's strategy isn't for short-term income here, it's for the growing U.S.-based market. SweetWater is currently available in 27 states plus the District of Columbia, and Aphria said that it provides "a platform and infrastructure within the U.S. to enable it to access the U.S. market more quickly in the event of federal legalization."
Aphria's next strategic move was to merge with fellow Canadian cannabis grower Tilray (TLRY). Aphria shareholders will own about 62% of the newly combined company, which will be led by Aphria chairman and CEO Irwin Simon. These moves come at a time of growing sales, but shares have also risen sharply recently.
A fully diversified portfolio can (and probably should) tolerate a certain amount of smart speculation. If marijuana ever gets fully legalized in the U.S., Aphria will be in a great position to capitalize. But investors might want to wait for a dip in the share price to get in on the action.
The lesson? Be ready
The most important thing for investors is to be prepared for opportunities presented by dips in the overall stock market. Crashes or corrections can happen quickly. And it can be difficult to decide quickly where to get funds to invest in a bargain when most everything is getting hit.
Having a plan ready ahead of time will pay off. A combination consisting of a blue chip company with reliable dividends, a sector just beginning to blossom, and a burgeoning pot stock could add a lot of strength to a new or old portfolio.
