We all know that, on a basic level, profiting off the market means buying low and selling high. Yet it's challenging to confidently know when is the best time to pull the trigger. The market moves fast. The latest example of this was last Thursday when the Dow Jones Industrial Average went on a breakneck 1,500-point rollercoaster ride over the course of a day.
Long-term investors, of course, know that the best way to handle such situations is to not pay a lot of heed to them. Rather, investors should find great companies and buy in at a good time and hold on to the stock until the money is needed for something else. Paying attention to big price swings is useful mostly to determine those opportunistic times to "buy low."
To do this, it helps to have a plan in place before the market retreats, for two simple reasons:
- A solid plan helps an investor confidently make purchases when others are panicking.
- Advanced research puts an investor ahead of the curve if the market makes a hasty comeback. (Did you know that the market's best single days typically happen less than a month after the worst single days? It's true!)
If the market has another crash, I've got four stocks in mind to buy (mostly because I already own stock in all four and I'm always looking for discount opportunities to add to my position). The four stocks are AbbVie (ABBV -2.10%), Amazon (AMZN 2.00%), Texas Instruments (TXN 1.44%), and Intuitive Surgical (ISRG 0.95%). All four have that "it" factor that makes it a confident buy in the event of a broader market tumble. Let me explain.
1. AbbVie is a massive outperformer
Boring old pharmaceutical giant AbbVie is the largest holding in my portfolio. Earlier this year, I called it a top pick in this market. Its dividend yield and stock price consistency in a bear market are significant draws. Pharmaceutical stocks are often a safe haven during a recession because medications are generally one of the last things consumers will cut back on in a recession.
That perception that what Abbvie offers is a necessity is one reason it managed a positive total return in 2022 while the broader market is down by double-digit percentages (see below).
ABBV Total Return Level data by YCharts.
Despite the good return, the stock's dividend yield hovers near 4%, and the payment has been raised yearly since the company's creation in 2013 as a spinoff of Abbott Laboratories. AbbVie's dividend is somewhat inflated at the moment because the stock price is discounted over concerns that its popular Humira drug will soon have competition from biosimilars in the U.S.
Humira accounted for $17 billion in sales in the U.S. in 2021. That number will likely drop significantly when biosimilars come out. However, management has reaffirmed guidance of over $15 billion in expected sales from its newer drugs, Rinvoq and Skyrizi, by 2025. Increasing sales of other drugs, such as Botox and Vraylar, should also offset losses and keep earnings growing.
AbbVie is a world-class drugmaker with a fantastic portfolio and healthy pipeline. A market crash could be a terrific opportunity to snag a great stock at a discount and a potentially even higher dividend yield.
2. Amazon is essential
Unlike Abbvie, Amazon underperformed the market this year. The pandemic pulled a lot of growth forward for Amazon and now it's experiencing the hangover effects of all that growth. It's also dealing with a tight labor market, rising logistical costs, and inflation, all of which hit profits. The short-term outlook is a bit gloomy, but we are long-term investors and Amazon is not going anywhere.
The U.S. Census Bureau estimates that e-commerce sales account for about 14.5% of all retail sales in the U.S. Around 50% of all those sales go through Amazon. That says two things: There is massive room for further growth in e-commerce and Amazon has a majority stake in it.
And yet, as big as Amazon is in the retail marketplace, its Amazon Web Services that's creating the biggest draw for investors at the moment. The revenue-generating capability of this cloud computing segment alone can nearly justify the stock's current valuation. AWS is expected to hit over $80 billion in sales this year, and its operating margin consistently tops 30%. AWS holds the top spot as far as cloud infrastructure market share (34%) and is an essential service for our daily economy because so many integral systems rely on it. Even if the market plunges, investors should feel confident that Amazon stock has significant long-term value.
3. Texas Instruments knows money management
Texas Instruments provides semiconductors to several end markets. The largest is the industrial segment, meaning the company is less sensitive to swings in the consumer electronics market than many other chipmakers. Texas Instruments supplies over 80,000 products to more than 100,000 customers. Product and industry diversity allow the company to generate consistent results.
The company prides itself on its cash management, and its track record speaks for itself. The dividend has grown for 18 straight years (even during the Great Recession) at a compound annual growth rate (CAGR) of 25%. Free cash flow per share has grown 12% annually during this time, and the share count has been reduced by 46% through stock buybacks.
Semiconductors are critical to our daily lives and the economy. Couple this with Texas Instrument's impeccable record of rewarding shareholders, and this stock is a shrewd pickup in the event of a market dive.
4. Intuitive Surgical: A massive moat and a pile of cash
The pandemic was tough on robotic-assisted surgery specialist Intuitive Surgical's growth or stock price. Many non-emergency surgeries were pushed back when hospitals filled with COVID-19 patients. Then there was a surge in surgeries as patients were allowed back in, causing speculators to overhype the stock and inflate its valuation. Now, some hospitals are considering scaling back budgets to account for a potential recession. Those same stock speculators are deflating the valuation and the stock price is down nearly 50% this year as a result. This stock price volatility tells one story, but the company's fundamentals tell a different story.
For starters, Intuitive Surgical is still growing. Procedures grew 14% year over year in the second quarter, and revenue increased by 4%. Revenue increased at a CAGR of 11% from Q2 2019 to Q2 2022. Similar to Amazon, the short-term has seen some volatility, but the long-term trend is positive.
Our population is aging, and robotic-assisted surgery is becoming the norm. This acceptance means more demand. Intuitive makes around 70% of its revenue from recurring sources like parts, services, and instruments; more procedures means more revenue. According to the Mayo Clinic, robotic-assisted surgery results in fewer complications, less pain, quicker recovery, and comparatively minor patient scars. Most metropolitan hospitals probably already use its systems.
Intuitive currently holds 80% of the market share for advanced surgical systems and has a large moat because of the barriers to entry, including high development costs, lofty switching costs, and regulatory hurdles. Intuitive has tremendous pricing power because of its industry dominance.
With this pricing power comes potential profit, which also profits shareholders. Intuitive reported $8.18 billion in cash and investments on hand in Q2. The cash hoard is a whopping 12% of the current market cap. The company uses some of it to take advantage of the stock's drop by repurchasing shares -- $500 million last quarter and another $3.5 billion authorized. This stock has already taken a beating and offers buying opportunities now. A broader market crash would make Intuitive Surgical stock even more tempting for long-term investors.
