Over the past two weeks, the investing community has been given a not-so-subtle reminder that stocks can move in both directions.
Even though the rebound to new highs from the March 23 bear market bottom came in record time, stock market corrections and crashes are natural parts of the investing cycle. Consider them the price of admission to the greatest wealth creator on the planet. We may not be able to precisely predict when a notable downside move will occur in the benchmark S&P 500, but we can be assured that another will come. After all, there have been 38 separate double-digit percentage declines in the S&P 500 over the past 71 years.
How investors react to these dips often determines how successful they are and how large their portfolios can grow. If a stock market crash or correction is brewing, investors are encouraged to pound the table and buy the following five stocks.
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NextEra Energy
One of the safest ways for investors to approach any crash or correction is to buy into defensive sectors and industries. The largest electric utility stock, NextEra Energy (NEE +1.21%), certainly fits the bill. Since electricity is a basic-need service for homeowners and renters, and demand for electricity remains relatively constant from one year to the next, cash flow is highly predictable.
There's more to NextEra than the fact that it provides a basic-need service. The company stands out for its front-running investments in renewable energy. No U.S. utility is generating more capacity from wind or solar than NextEra Energy. That's pushing generation costs way down and keeping the company's sustainable high single-digit growth rate.
It's worth noting that the Federal Reserve's intent to keep lending rates at or near historic lows through 2023 will only encourage NextEra to keep its foot on the gas. With cheap access to capital, NextEra plans to continue adding solar farms and wind capacity. A stock market crash should have virtually no effect on NextEra's underlying business.
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Annaly Capital Management
Take a good look at the performance of mortgage real estate investment trust (REIT) Annaly Capital Management (NLY 0.68%) during the coronavirus crash a year ago, and you might shudder at the prospect of buying it during a market plunge. But make no mistake about it -- macroeconomic factors have shifted in Annaly's favor over the past year.
Without getting too complicated, mortgage REITs borrow at short-term rates and acquire assets with higher long-term yields. The difference between these yields is known as net interest margin (NIM). Put simply, the higher the NIM, the more profitable the mortgage REIT.
What Annaly primarily purchases is agency mortgage-backed securities (MBS). An agency asset is one that's protected by the federal government in the event of default. With the yield curve steepening (the yield curve usually steepens during the early stages of economic recovery) and Annaly's assets protected from default, NIM is likely to expand in the near future. Annaly should be able to use leverage to its advantage.
It's not a stock that's going to make you rich overnight. However, it has the ability to sustain a low double-digit dividend yield that income investors will appreciate.
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Jushi Holdings
Growth stocks shouldn't be off-limits just because the stock market is more volatile than normal. Should a crash arise, marijuana stocks could be a sneaky-smart play. That's because cannabis behaves like a consumer packaged good during periods of recession (a fancy way of saying that demand remains mostly unaffected). This is what makes multistate operator Jushi Holdings (JUSHF +4.70%) such a pound-the-table buy.
What really separates Jushi from other multistate operators is its focus on limited license states. A handful of the 36 states that have waved the green flag on medical or recreational weed have chosen to limit the number of dispensary licenses they issue, or to issue licenses to companies based on jurisdiction. The three core markets for Jushi -- Pennsylvania, Virginia, and Illinois -- all limit the number of retail licenses issued. This will allow Jushi to effectively build up its brand while facing minimal competition.
Jushi also happens to be one of the fastest-growing pot stocks, while trading at one of the lowest price-to-sales multiples. It does have fewer open locations (16) than most multistate operators, but has a pathway to increase its operating dispensaries to north of two dozen by the end of the year. Jushi looks well on its way to recurring profitability.
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Salesforce
Once again, there's no reason to shy away from growth stocks during a crash -- especially if said growth stocks are dominant in their respective industries. That's why cloud-based customer relationship management (CRM) software solutions provider salesforce.com (CRM 3.24%) should be on your buy list.
CRM software allows businesses to effectively manage customer information. It can help with logging contact information and service issues, aid in managing marketing campaigns, and assist in identifying prospects for new products. Virtually all consumer-facing businesses are potential CRM customers. As time has passed, we've seen CRM become more popular with nontraditional sectors, such as healthcare and finance.
Salesforce is the kingpin of CRM software. According to IDC, the nearly 20% share of global CRM revenue Salesforce controlled in the first half of 2020 is more than the next four players by market share combined.
Furthermore, Salesforce's growth potential is expected to accelerate if it can complete its $27.7 billion cash-and-stock buyout of enterprise communications platform Slack Technologies. Slack will give Salesforce the opportunity to cross-sell its solutions to businesses of all sizes.
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Intuitive Surgical
Finally, investors should jump at the opportunity to scoop up shares of robotic-assisted surgical system developer Intuitive Surgical (ISRG 1.48%) at a discount if a stock market crash arises.
If you think Salesforce is dominant in its industry, take a look at Intuitive Surgical in the robot-assisted soft tissue surgical space. It's installed nearly 6,000 of its da Vinci systems since 2000, which is far more than its competitors combined. The rapport this company has built within the medical community is priceless.
Investors are really going to love Intuitive Surgical's operating model, which is built to improve over time. During the 2000s, the company generated most of its revenue from selling its highly intricate and mediocre-margin da Vinci systems. Nowadays, the bulk of its revenue comes from selling instruments and accessories with each procedure, as well as servicing its systems. As more systems are installed, a greater percentage of revenue will be derived from these high-margin segments.
A stock market crash or correction isn't going to have a material effect on Intuitive Surgical's growing demand in the operating room.
