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2 Stocks to Buy if Inflation and Shortages Cause a Stock Market Crash

By Rich Duprey – Dec 30, 2021 at 2:31AM

Key Points

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Hedge against the ravages of rising prices with this pair of quality companies.

Stock market crashes and corrections happen. Since the end of World War II, the benchmark S&P 500 has tumbled 10% or more 27 separate times. They've been slightly more common this century, however, with corrections of 10% or more occurring in 12 out of the last 21 years. 

A bear market of at least a 20% decline will also eventually occur again. Last year's market crash due to the onset of the global pandemic saw the Dow Jones Industrial Average lose 37% of its value between February and March. Soaring inflation and stubborn supply chain hiccups could at least cause a correction, if not a recession, as the Federal Reserve has signaled it is ready to raise interest rates in 2022 to combat runaway price increases.

A Bankrate survey found 70% of analysts believe a reversal is imminent within days to the next six months. Soaring stock values since the COVID crash could lead to deferred stock selling in the new year to get ahead of Fed rate increases.

Yet it's also important to keep such downturns in perspective. The Schwab Center for Financial Research says the average bear market has lasted only about 17 months, and 80% of corrections since 1974 have not turned into a bear market. 

Still, if a combination of inflation, supply chain woes, and overheated stock valuations conspire to cause the stock market to fall, the following two stocks are good bets to carry you through the low points of any correction and beyond.

Smiling person holding smartphone

Image source: Getty Images.

1. Apple

One of a stock's enduring qualities to get through an inflationary period is a quality brand with pricing power. Few if any companies offer as good of a combination of that as Apple (AAPL 1.56%). Its combination of brand, pricing, and customer loyalty gives it a competitive edge unavailable to most other stocks.

Apple is currently benefiting from the smartphone upgrade cycle and the rollout of 5G network infrastructure. Supply chain woes continue to dog it, and Apple reportedly told suppliers that demand for the iPhone is waning as the year draws to a close. Still, Apple isn't likely to lose many customers because people will likely just defer a purchase until supplies are available.

Apple customers don't often consider products from competing companies suitable substitutes, so if the logjams delay availability long enough, consumers will just wait for the iPhone 14 to come out. While that could hurt the overall sales numbers of the current model, it would likely just push Apple's sales bubble out to the future.

Apple has the benefit of being able to impose higher prices onto its customers, so rising costs for components isn't necessarily an issue for the tech giant because of its appeal as a luxury brand. And though its stock price wouldn't be immune from a market correction or recession, investors will appreciate its stable cash flows and cash hoard, which totaled $62 billion at the end of the third quarter.

Stability, consistency, and quality are the hallmarks of a stock for troubled times, and Apple gives that to investors in spades.

Crew working on oil rig.

Image source: Getty Images.

2. ExxonMobil

If you look at last year as a gauge of how ExxonMobil (XOM 0.15%) will behave during a recession, you might come up with a skewed outlook because a year when global governments shut down their economies is an unprecedented event and not one easily planned for. Assuming such drastic measures are not imposed again, Exxon should be able to emerge, if not unscathed, at least well ahead of the game.

Fossil fuels will likely be with us for years to come, and even the advent of electric cars won't absolve the need for them. Even assuming they displace the internal combustion engine, the energy to charge EVs has to come from somewhere, and while coal-fired power plants are a dying breed, gas-fired ones are essential to pick up the slack for some time.

Exxon's vertically integrated operations will serve it well, particularly in an inflationary period. Energy prices are the primary cause for the rise in the Consumer Price Index (CPI). In November, the CPI was up 0.8% as the energy component was up 0.5% following a 0.9% increase in October on energy's 0.6% rise. Over the last 12 months, the CPI is 6.8% higher -- the largest one-year increase since 1982 -- as the energy index soared 33.3%.

The Organization of the Petroleum Exporting Countries (OPEC) and Russia are betting on pent-up demand for energy outweighing any recession and have agreed to continue pumping more oil. The U.S., of course, is not subject to OPEC's strictures, but it's a good proxy for how pricing will be affected.

Exxon's discovery at Longtail-3 off the coast of Guyana as well as at Cataback-1 brings to 10 billion the number of oil-equivalent barrels it will add to its resource estimates for the massive Stabroek Block (Exxon owns a 45% interest in the project; Hess owns 30% and China's CNOOC owns 25%).

With a dividend that yields 5.6% annually, ExxonMobil is a good hedge against the continued rise in oil prices while offering a stable and growing business. 

Rich Duprey owns ExxonMobil. The Motley Fool owns and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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