Investors got a taste of a down market in early 2022 when the widely followed market indexes dropped more than 10% from recent highs into correction territory. The technology-laden Nasdaq Composite index even reached bear market level with a drop of over 20% by early March.
The markets haven't returned to new highs yet, and another market crash is going to happen. That's part of investing, and no one can predict when it will come. But if the recent drops had you anxious, it would be smart to look at investing in these two names that can help keep you relaxed through the inevitable drops.
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Make it a win-win
Every severe market downturn is different, of course. The cause, or causes, of a bear market will determine which stocks get hit hardest. If a recession is the trigger, there are companies that will still do well, even if their stocks move with a market trend. Two of those companies are big-box discount retailer Costco Wholesale (COST -0.24%) and spice and flavors maker McCormick (MKC 1.68%).
Consumers looking to cut spending will move toward buying non-discretionary items where they can get the best value and will likely eat out less often. Costco and McCormick benefit from both of these trends. So while even these stocks may go down with most other equities in a bear market, investors can rest easier knowing the underlying businesses are likely to be holding up well. Using the Great Recession of 2008/2009 as an example, while Costco's sales -- and its stock price -- did decline, both recovered quickly and the stock outperformed the S&P 500 index coming out of that period.
COST Total Return Level data by YCharts
Whether it's a recession or some other catalyst that triggers a market crash, both the market and the economy will eventually recover. As the following chart shows, the overall trend for economic growth in the U.S. is sharply up over time.
Declines in the GDP of the U.S. become mere blips when looking at long-term trends.
While economic slowdowns and recessions can be painful at the time, the broader view shows they become merely a blip in the scheme of overall growth.
Following the trend
As the economy expands over the long haul, investors have been rewarded by the returns of Costco and McCormick shares since 1990, too.
Data by YCharts
Acting as a hedge
As mentioned, both Costco and McCormick offer a way to minimize the downside when consumers change spending habits on essentials. McCormick's consumer segment taps into the cooking-at-home spending. That typically rises when times are tough and people are anxious about sharp decreases in their portfolios and net worth.
But the company's flavor solutions segment also supplies commercial food service needs including restaurants and entertainment venues. Those sales increased 12% in the fiscal first quarter ended Feb. 28, compared to the prior-year period as consumers continue to venture out more. For the full fiscal year 2021, flavor solutions made up 38% of McCormick's net sales. That shows the balance it has with both at-home and entertainment consumer spending.
Both Costco and McCormick also share earnings with investors through dividends. Costco opts to have a relatively low base dividend, and to pay special dividends to shareholders in good times. That's happened four times in the last decade, and both companies have increased their dividend consistently over that time period.
Dividends Paid (TTM) data by YCharts
Market declines and even crashes are going to happen. Investors should plan for them to ensure emotions and panic don't take over at the most inopportune times. Holding shares of Costco and McCormick can provide stability in those scary times. The businesses themselves can continue to prosper when the economy falters, helping both companies continue to pay out a reliable dividend just when investors need added security.
