For every high-flying stock in your portfolio, it's wise to have a "safe" stock -- one that will perform regardless of how the broader economy is doing. These also tend to be excellent stocks to buy in a market crash, as they will almost certainly emerge on the other side relatively quickly and as strong as before.
While these stocks aren't immune to some level of price drop during a crash (no stock can say that), they should protect you from a significant downturn and recover right along with the rest of the economy.
Let's look at three of these safe bets in the event of a market crash that you should consider for your portfolio.
1. Alphabet
Alphabet (GOOGL 10.22%) (GOOG 9.96%) is the parent company of Google, YouTube, the Android operating system, and much more. Alphabet's business right now is largely reliant on advertising to generate revenue. In the first quarter, about 78% of revenue came from advertising-related sources.
Advertising is a growing market, especially online advertising, but it isn't immune to economic downturns. Unfortunately for Alphabet, in an economic downturn, many companies look for ways to trim expenses and ad budgets are an early victim. Fortunately for Alphabet, whatever ad budget remains for these companies gets spent mostly in the most effective ways -- Alphabet's Google products. These Google products are often seen as must-advertise areas, and companies aren't as likely to reduce their spending on that platform. In fact, when many advertising-based companies struggled during Q1, Google's advertisement revenue still managed to rise 2%.
Alphabet also tends to reaccelerate its growth directly after a recession.
GOOGL Revenue (Quarterly YoY Growth) data by YCharts
As the probability of a recession rises, Alphabet's revenue growth drops in preparation for the recession, as clients cut ad budgets. Immediately after the recession probability falls, Alphabet's revenue growth spikes again as it sees a wave of advertisement spending.
This trend makes Alphabet a solid stock to buy during a market crash, as it will likely emerge out of a downturn better off than how it entered.
2. Adobe
Investing in companies whose products are required to do a job is another smart strategy. In the case of Adobe's (ADBE 0.87%) creative design product suite, any company with a graphic design wing needs its products to get by. The way Adobe's subscription billing schedule is structured, customers can't choose to not upgrade to the latest version -- it's required.
This helps protect Adobe from steep revenue decline even if the economy sours. It doesn't mean Adobe's stock won't see a decline, but if it does, investors shouldn't be worried.
Adobe's margins are high enough that the company generates plenty of cash flow. Over the past few years, it's focused some of that spare cash on repurchasing its stock. If there is a substantial stock price decline during a downturn, expect management to ramp up its stock buybacks and take advantage.
By increasing stock buybacks at a lower price, Adobe's management will get more bang for its buck while still providing shareholders with better returns.
3. Visa
Similar to Alphabet and Adobe, Visa (V -0.23%) is another company so integrated into global systems that it will be fine regardless of what happens in a market crash. The payments giant takes a cut of every transaction processed through its network, making it almost subscription-like. Additionally, Visa is just a processing network, and it doesn't carry any credit card debt that could result in losses on its balance sheet, regardless of how the economy is doing.
During an economic downturn, consumers might scale back their spending a bit and create a decline in transaction volume (and a subsequent decline in revenue). But the spending decline tends to be temporary and is mitigated somewhat by the fact that consumers are so inclined these days to do all their transactions using a credit (or debit) card. There may be fewer transactions overall, but increased credit card usage and consumers rely more on the cards to manage their monthly budgets. This is basically what happened during the COVID-19 pandemic market crash back in 2020.
V Revenue (Quarterly YoY Growth) data by YCharts
Take advantage of stock price dips for these stocks
Because investors tend to sell stocks indiscriminately during a market crash, it can often be a great time to pick up shares of quality stocks as part of a long-term buy-and-hold strategy. All three of these stock purchases depend, in part, on being able to take a long-term mindset during a crash.
Although it will undoubtedly be scary, the best thing to do if you already hold these stocks is likely nothing, as emotional decisions rarely work out in investing. The second-best thing is to look for great companies that are being overly sold off. These are the first ones to emerge on the other side just fine after the initial shock of the crash has worn off.
So when that next crash happens, be ready to take advantage, have your buy list ready, and be sure Alphabet, Adobe, and Visa are all on the list.
