One of the hardest things to predict is a market crash. They can come suddenly and be driven by any number of factors, as we've seen recently in the energy sector. But not all companies are affected equally by a rapid fall in the market.
With energy's crash in mind, we've rounded up three stocks our energy specialists think are well prepared for a stock market crash.
Travis Hoium: If the market crashes, which is currently happening in the energy sector, I want to be in a stock that has guaranteed cash flows for years or even decades to come. That's why my pick for a market crash is NRG Yield (NYSE:NYLD), the yieldco subsidiary of NRG Energy (NYSE:NRG).
Yieldcos were conceived as a way for investors to invest in renewable energy power plants that have predictable long-term cash flows. Until their launch, the best way to invest in renewable energy was through a solar-panel manufacturer or a supplier of parts for wind turbines or other parts of the industry. But the supply business is fraught with risk, and companies have gone boom and bust regularly over the past decade.
While renewable-energy manufacturers may be risky, the projects they build generally aren't. Solar and wind power plants are usually built with a 20-year power purchase agreement, a contract in which the utility agrees to buy electricity from the plant for a set price over 20 years. This agreement creates predictable cash flows for power plants and the companies that own them. That's exactly what yieldcos do.
NRG Yield was one of the first yieldcos, and it owns wind and solar power plants along with a few fossil fuel power plants that allow it to capture renewable-energy tax benefits. These assets mean cash flows are predictable and guaranteed for decades to come. If the market crashes, NRG Yield will keep pumping out cash and paying a dividend. That's the kind of stock I want to own.
Tyler Crowe: I'm just as curious as the next person as to when this major dip in oil prices and energy stocks will bounce back. In the meantime, though, it's not keeping me from wanting to buy shares of great companies in the space, such as National Oilwell Varco (NYSE:NOV). With over $14 billion in order backlog from its rig systems -- the primary revenue driver -- there is plenty of work for National Oilwell Varco to do for the next couple of years or so to hold it over until the market for new orders picks back up again. Also, with more than 60% of the global offshore fleet using NOV's drilling system, there is a large built-in customer base for its aftermarket products that are consumables and deteriorating equipment such as drill bits. Drilling may slow, but it isn't going to come to a complete stop, and these types of products will remain in demand even during these down times.
On top of that, the company has a track record for maintaining relatively solid growth compared to other oil services companies in the space over the past several years. Add to that a rock-solid balance sheet with loads of cash to deploy. There is still room to boost shareholder value through share buybacks and dividends, or maybe even to acquire a distressed competitor that gives NOV an even greater strategic advantage. With shares trading 25% less than their recent high and at less than 11 times earnings, it seems like a pretty opportune time to buy.
Maxx Chatsko: Exelon (NYSE:EXC) may not be the market's favorite energy stock right now, and it managed to grow its market valuation only 7% from the lows set during the Great Recession, but it has become much more resilient since early 2009. The company has maintained a healthy dividend yield hovering near 3.5% while cleaning up its balance sheet. In fact, it has nearly doubled shareholders' equity (what a company is worth on paper) to $23.7 billion and reduced its price-to-book value (the premium paid to what a company is worth on paper) from a hefty 2.6 to just 1.3 during the same time period.
The company is poised to become even healthier moving forward. To bolster its current low-cost portfolio of energy generation assets, Exelon has agreed to sell five non-core assets worth nearly $1.4 billion in after-tax sales. Additionally, the company's nuclear fleet in Illinois, which often takes center stage in debates over energy competitiveness with wind and natural gas power sources, could get a big boost from two proposed state laws. One seeks to set a minimum sourcing requirement of low-carbon generation sources for all electricity distributors, while the other seeks to create a carbon trading market. Both would allow Exelon to generate sizable additional revenue streams from its nuclear fleet.
If the market crashes or cools down anytime soon, investors may want to consider the combination of income, value, and growth potential Exelon presents.
Maxx Chatsko has no position in any stocks mentioned. Travis Hoium owns shares of NRG Yield Inc., Seadrill, and SunPower. Tyler Crowe owns shares of National Oilwell Varco and Seadrill. The Motley Fool recommends Exelon, National Oilwell Varco, and Seadrill and owns shares of National Oilwell Varco, NRG Energy,, and Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.