For the past year, investors have enjoyed a record-breaking rally. The tech-reliant Nasdaq Composite more than doubled from its lows set during the coronavirus crash, while the widely followed S&P 500 rose more than 75%.
You could rightly say that things have been perfect -- perhaps a bit too perfect.
Although it's undeniable that growth in operating earnings pushes the broader market higher over time, it's equally true that stock market crashes are a natural part of the investing cycle. Right now, there are a growing number of clues that suggest a stock market crash may be near.
While that might be concerning to short-term traders, a crash or correction is an opportune time for long-term investors to put their money to work in the world's greatest wealth creator. If a stock market crash were to arise, the following three stocks would make for perfect buys.
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NextEra Energy
One of the smartest ways to preserve capital and grow your wealth during a stock market crash is to seek out defensive sectors and industries. But just because you're buying a defensive stock, it doesn't mean it has to be boring.
Most utility stocks are exactly that: boring. They usually offer steady cash flow, a reasonable dividend, and a low-single-digit growth rate. But electric utility stock NextEra Energy (NEE -0.81%) isn't your typical utility.
Its differentiation comes from its hefty investments in renewable energy. No utility in the country generates more capacity from wind or solar power than NextEra, and it's liable to stay that way, with the company investing between $50 billion and $55 billion on infrastructure (mostly renewable energy) between 2020 and 2022.
Though green-energy projects are costly, they're also worthwhile in many ways. Jumping on the wind and solar bandwagon will put NextEra ahead of what seems like inevitable legislation out of Washington to move utilities away from fossil fuels. It also substantially lowers the company's generation costs, which has resulted in a compound annual growth rate in the high single digits for more than a decade. And it certainly doesn't hurt that historically low lending rates are making it cheaper for NextEra to finance solar and wind projects.
Aside from the rapid earnings growth associated with renewable energy, NextEra also benefits from the stability of its regulated utilities. It may not be able to pass along price hikes without the blessing of state-level public utility commissions, but it also isn't exposed to the wild vacillations in price that can occur on wholesale markets.
This unique operating model in an otherwise boring sector would be perfect to buy if the market crashes.
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Cresco Labs
On the surface, marijuana stocks might not sound like a great way to play a stock market crash. After all, most were pummeled alongside the broader market in February-March 2020. But there's a lot more we know about the cannabis industry now than we did a year ago, and that's why U.S. multistate operator Cresco Labs (CRLBF 1.76%) would make a perfect buy.
Perhaps the first point to make is that we learned cannabis behaves like a traditional consumer packaged good. This is to say that even one of the worst recessions in decades didn't dissuade consumers from buying it. While not completely recession-proof, cannabis has shown itself to be highly recession-resistant.
More specific to Cresco, it's established two paths to exceptionally strong growth. First, Cresco Labs operates approximately two dozen dispensaries. It's also in the process of acquiring Bluma Wellness, which'll add another seven operating dispensaries, and it announced the purchase of Cultivate in Massachusetts last week, which brings two additional dispensaries into the fold, with a third on the way. Cresco appears to be focusing a lot of its attention on states where retail license issuance will be limited (Illinois, Ohio, and Massachusetts). By doing so, the company is minimizing its competition and giving itself a better chance to successfully build up its brands.
Potentially the more profitable segment for Cresco will be its wholesale operations. Even though wholesale cannabis is known for its lower margins, relative to retail, the company has more than enough volume to make up for it. That's because it holds a coveted marijuana distribution license in California, the largest pot market in the world by annual sales. Cresco can place its proprietary and third-party products into more than 575 dispensaries throughout the state, and this figure should continue to climb.
The key here is that Cresco is also set to turn the corner to recurring profitability. Relative to Wall Street's forward-year sales forecast, it's one of the top bargains in the high-growth cannabis space.
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AstraZeneca
I'll say it again, in case you haven't been paying close attention: The perfect stocks to buy during a market crash are growth stocks operating in defensive industries or sectors. Since we don't get to control when we get sick or what ailment(s) we develop, it means healthcare stocks are a fantastic place to put your money to work. In particular, pharmaceutical stock AstraZeneca (AZN -0.24%) could be an exceptionally smart play.
Following two decades of running in place, AstraZeneca's oncology program has the company running on all cylinders. Keeping in mind that last year was one of the most challenging on record for the U.S. economy, AstraZeneca grew sales for its cancer drugs by 24% on a constant-currency basis to $11.5 billion. All three of its blockbusters -- Tagrisso, Imfinzi, and Lynparza -- delivered constant-currency sales growth ranging from 36% to 49%. The strong pricing power associated with oncology drugs, coupled with longer duration of use and improved early cancer detection, should allow this segment to continue growing by a healthy percentage.
The company's cardiovascular (CV) segment also deserves a nod. Despite tamer constant-currency sales growth of 9% for CV in 2020, type 2 diabetes drug Farxiga keeps dazzling. Sales for Farxiga rose 30% last year to nearly $2 billion. With over 34 million diabetics in the U.S. and another 88 million people showing symptoms of pre-diabetes, Farxiga's ceiling could be a lot higher.
Equally exciting is AstraZeneca's pending acquisition of Alexion Pharmaceuticals (ALXN), which develops therapies that treat ultra-rare diseases. Though developing drugs for very small patient pools can be risky, the company is rewarded with limited or nonexistent competition when successful, and it often faces little pushback on its list prices from health insurers.
Just as important, Alexion took the time to develop a replacement for its blockbuster drug Soliris, which some analysts have speculated could face competition once its exclusivity expires. This next-generation replacement, known as Ultomiris, is administered every eight weeks, as opposed to every two weeks with Soliris. Not only does this improve the quality of life for patients, but it'll also help to preserve Alexion's cash flow (soon to be AstraZeneca's cash flow) for at least the next decade.
