It's a subject that investors often don't like to talk about, but stock market crashes and corrections are a common and inevitable part of the investing cycle. On Monday, the benchmark S&P 500 suffered its worst single-session decline in months, raising speculation, once again, that a correction or crash may be around the corner.
If we turn to history as a guide, a double-digit percentage decline is likely long overdue. For instance, in each of the previous four instances where the S&P 500's Shiller price-to-earnings (P/E) ratio surpassed 30, the index subsequently declined by at least 20%. The S&P 500's Shiller P/E ratio topped 38 last week -- it's highest reading in almost two decades.
History has also been pretty clear that rebounds from a bear market bottom are never this smooth. In each of the previous eight bear markets prior to the coronavirus crash, there were either one or two double-digit percentage pullbacks within three years of reaching the bottom.
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But there's good news, too: Crashes beget opportunity for long-term investors. If this latest bout of volatility leads to a long overdue crash or correction, consider buying the following seven winning stocks hand over fist.
CrowdStrike Holdings
You know what doesn't change one iota when the market crashes? The demand for cybersecurity solutions. That's why any discount you can get on cybersecurity stock CrowdStrike Holdings (CRWD -0.68%) should be considered a blessing.
CrowdStrike's cloud-native Falcon platform is its superstar. It oversees approximately 6 trillion events weekly and uses artificial intelligence to become more efficient at identifying and responding to threats over time. Because Falcon was built in the cloud, it's usually nimbler than on-premises security solutions, and more cost-effective, as well.
CrowdStrike's operating results clearly show that its customers love the product. It's retaining 98% of its clients, and 64% of its customers purchased four or more cloud-module subscriptions in the most recent quarter. For some context, four years ago, only 9% of its clients had four or more cloud-module subscriptions. CrowdStrike is a no-brainer buy on weakness.
Image source: Home Depot.
Home Depot
If brand-name stocks are more your thing, a stock market crash or steep correction has historically always been a smart time to load up your cart with shares of do-it-yourself home-improvement chain Home Depot (HD -1.77%).
The great thing about Home Depot is that it can play both sides of the fence. If the U.S economy is firing on all cylinders, there's a good chance sales to commercial clients and contractors will be strong.
Comparatively, when economic uncertainty becomes an issue, we've often witnessed homeowners become Home Depot's driving force via remodels and projects. The company is surprisingly well-hedged for virtually all economic scenarios.
Investors should also note that Home Depot has invested aggressively in digitization. Though brick and mortar remains the core sales driver, Home Depot has seen a big uptick in digital sales over the past couple of years. This seamless integration of the physical and digital experience should help it navigate any near-term market turbulence.
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AGNC Investment Corp.
Don't worry, I haven't forgotten about you dividend income seekers out there. Should a crash or correction occur, mortgage real estate investment trust (REIT) AGNC Investment Corp. (AGNC -0.11%) and its 9% dividend yield would be ripe for the picking.
Mortgage REITs are companies that borrow money at lower short-term rates to buy assets with higher long-term yields, such as mortgage-backed securities. The difference between the yields they receive on their owned assets minus their borrowing rate is known as the net interest margin.
Typically, the bond yield curve steepens during the early stages of an economic recovery, which is where we are now. When that happens, it's pretty common for mortgage REITs to see their net interest margin expand.
What's more, AGNC Investment's asset portfolio is almost entirely devoted to agency assets -- i.e., securities backed by the federal government in the event of a default. Having this added protection allows AGNC to wisely use leverage to its advantage in order to increase its profitability.
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Bristol Myers Squibb
When stock market volatility picks up, putting your money to work in defensive industries and sectors is usually a smart idea. That's why pharmaceutical stock Bristol Myers Squibb (BMY -0.27%) would make for the perfect buy.
Bristol Myers made one heck of a splash when it acquired cancer and immunology drug developer Celgene in 2019. Celgene's leading cancer drug, Revlimid, has grown sales annually by a double-digit percentage for over a decade, and the company has benefited from strong pricing power, label expansion opportunities, and longer duration of use. Revlimid brought in more than $12 billion for Bristol Myers last year and is protected from a flood of generics until early 2026.
However, Bristol Myers Squibb isn't just relying on acquisitions to get the job done. Eliquis has become the unquestioned global oral anticoagulant therapy of choice, and cancer immunotherapy Opdivo brought in about $7 billion in sales in 2020. With Opdivo being examined in dozens of ongoing clinical trials, label expansion opportunities offer plenty of promise.
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NextEra Energy
Another defensive stock that can be confidently bought hand over fist during a stock market crash or steep short-term decline is electric utility NextEra Energy (NEE 0.54%).
Most utility stocks are slow-growing business that rely on the predictability of demand for their services. This is what makes them solid dividend stocks and a good bet to outpace the prevailing U.S. inflation rate more years than not. What makes NextEra so special is its focus on alternative energy.
NextEra is putting between $50 billion and $55 billion to work on predominantly green-energy projects between 2020 and 2022 and is the leading utility by solar and wind capacity in the country. Leaning on renewable energy has driven down electric-generation costs and pushed the company's growth rate to the high single digits for more than a decade.
Keep in mind that NextEra's traditional utility operations (i.e., those not powered by wind or solar) are regulated. Though the company can't pass along price hikes whenever it wants to, it has no exposure to potentially volatile wholesale-electricity pricing. This is a highly predictable -- and profitable -- utility stock.
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Green Thumb Industries
An important thing we learned about cannabis during the coronavirus pandemic is that it's treated like a basic-need consumer good. In other words, people keep buying weed, no matter how well or poor the economy is performing. That means a crash would mark an excellent opportunity to buy U.S. multistate operator Green Thumb Industries (GTBIF 2.46%).
Green Thumb currently has 59 operating dispensaries and 110 total retail licenses in 13 legalized states. It's been particularly picky about the states it's chosen to operate in and has focused on states where license issuance is capped by regulators. This will minimize the number of competitors it's up against.
The real secret to Green Thumb's success, and why it's been able to turn the corner to recurring profitability, is the healthy amount of revenue generated from derivatives, such as vapes, oils, and edibles. Derivatives are far less likely to face oversupply concerns, relative to dried cannabis flower, and they produce superior margins. Suffice to say, Green Thumb can show opportunistic investors the green if bought during a crash.
Image source: U.S. Bank (U.S. Bancorp is its parent company).
U.S. Bancorp
A final company to buy hand over fist is regional banking giant U.S. Bancorp (USB 1.56%).
Even though bank stocks tend to get hammered during crashes or corrections, U.S. Bancorp has proved time and again that it's in a class of its own among big banks. It consistently offers one of the highest return on assets, and its conservative management team has kept the company from chasing after risky derivative investments that have previously crippled money-center banks. Perhaps it's no surprise that it also offers one of the juiciest U.S. big-bank dividend yields at 3.4%.
Arguably even more important to U.S. Bancorp's success has been its ability to coerce its customers to bank digitally. In the May-ended quarter, 80% of all transactions were completed digitally, which included just shy of two-thirds of all loan sales. The more its customers embrace digital banking, the more branches the company can close. And the more branches it consolidates, the lower its noninterest expenses will be.
