You know it's going to happen, and you know it's coming sooner rather than later.
A stock market crash is inevitable because just as night follows day, market swoons are a natural outgrowth of the normal business and investment cycle. No one can forecast exactly when it will strike, but smart investors realize it's best to prepare for the eventuality.
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The clouds on the horizon
For pretty much as long as people have been investing, stretching even as far back as the 1600s tulip mania in The Netherlands, busts have followed booms.
But looking only at market declines in the U.S. after the end of the Great Depression, there have been a dozen times when stocks plunged by double-digit rates, often by 20% or more. That's the typical percentage decline that defines a bear market.
Last year's pandemic-driven 34% drop in the stock indices within the span of just a few weeks was the worst on record. The Great Recession of 2007-2009 was one of the longest.
Forewarned is forearmed, so with the probability that another decline will come, particularly following the meteoric rebound made after last year's plunge that's thrown rational valuations out of kilter, prepare for the worst and hope for the best.
Here's where to invest ahead of the next stock market crash
One of the worst things you could do with the knowledge of an impending market crash is to put your head in the sand or withdraw all of your money from the market. That's because a raging bull market almost always follows a precipitous drop. Crashes are often the best time to buy. So long as you don't need the money for at least three years, and preferably can hold for decades, putting your money to work in these stocks can make your portfolio shine.
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First Majestic Silver
While silver had a brief star turn as a meme stock investment earlier this year, silver miner First Majestic Silver (AG 1.15%) should be on every investor's radar because it remains one of the major miners to rely primarily upon silver for the majority of its revenue, about 70%, with three top-notch operating mines in Mexico and one in Nevada.
Also, having acquired the Jerritt Canyon mine in Nevada, which will be immediately accretive to its operations, First Majestic has an excellent organic growth profile.
Silver is important because beyond its value as a precious metal, it has vital industrial, technological, and consumer uses, especially in automobiles, solar panels, and of course jewelry. A rebound in economic activity following a market crash will add to silver's sheen.
First Majestic's San Dimas, Santa Elena, and La Encantada mines should see significant yield increases, even though they suffered a production decline last quarter after setting a record pace in the previous quarter. Jerritt Canyon also ought to really help First Majestic's production efforts in the back half of the year and beyond.
The silver stock reported its 2020 all-in sustaining costs, an important industry metric for measuring the cost of its metals, were $12.43 per ounce. With silver priced at around $25 per ounce, even if it was to plunge to $15 per ounce First Majestic would still be a profitable endeavor.
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Yamana Gold
Yamana Gold (AUY) is one of the premier gold miners, and though gold is primarily more of a backstop investment with far fewer industrial uses than silver, there's still good reason to believe in a bullish case for the precious metal.
For one, compared to the S&P 500, which is up 42% over the past year, the price of gold as represented by the SPDR Gold Shares (GLD 0.31%) exchange traded fund is down 1%. But a gold miner such as Yamana Gold is a better bet than an ETF because any gain in the price of gold significantly improves its per-ounce operating cash margin.
Yamana says its primary objective is to maximize free cash flow, and last year it produced almost $456 million in net FCF, or 42% more than in 2019. Because its FCF generation has been so strong, Yamana hiked its annual dividend by 50% to $0.105 per share.
Its ability to produce strong cash profits has allowed the miner to significantly reduce its debt burden with net debt standing at $565 million, and achieve management's objective of net debt-to-EBITDA of below 1.0 times.
At around $4 per share, Yamana Gold trades at a fraction of its book value as well as the rate at which Wall Street forecasts it will be able to grow its earnings over the next few years. A market crash could have investors seeking out the safety of gold as an asset with intrinsic value, and this gold stock could be primed to catch that swing.
