There were many lessons to learn following the crash of 2008, and one of the the biggest for investors should have been that a crash takes everything down, not just companies that have weak balance sheets. That means many world-class blue chips were kicked undeservedly to the curb.
Should another crash occur, and by that I mean stocks being taken down 25% or more, here are six stocks I would scoop up without a second thought:
General Electric (NYSE:GE) is the classic long-term hold. Somehow, despite all these years, the company is still projected to grow earnings at a 15% annualized rate over the next five years. It has plenty of cash to pay its 3.6% dividend (after the severe dividend cut that outraged shareholders in 2009, it had better), and its tendrils extend to hundreds of different products all around the world to lend diversity to its operations. Though some folks may be skittish after GE stock took an 80% flop after the financial crisis and a 20% slide since February, don’t forget GE has also tripled off its crisis lows.
Coca-Cola (NYSE:KO) remains the premier soft-drink company in the world. It has created just under $9 billion in free cash flow in the last 12 months alone, has projected 5-year annualized growth of 9% and yields 2.8%. That one can find Coke in the most remote locations on earth, and yet the company still has room to grow tells you all you need to know.
Walt Disney (NYSE:DIS) is the third brand name to aim for. With the acquisitions of Marvel and Pixar over the last several years, the Disney movie brands have powerhouse box office potential, regardless of the economy’s weakness. Just like GE, Disney is looking at 15% 5-year annualized growth, generated $4 billion in free cash flow over the last 12 months, and pays a not insignificant 1.1% dividend. It’s diverse media operations including ESPN and ABC also help keep this company stable.
On the smaller side, I would buy First Cash Financial Services (NASDAQ:FCFS). The company owns hundreds of pawn shops and will not only benefit from a deeper recession, but has just scratched the surface in its Mexican expansion plans. The stock is undervalued as it is at 16x next year’s estimates while growing earnings at a 20% clip. Over $40 million in cash, no debt and great management. What’s more recession proof than a pawn shop?
Next up is Ashford Hospitality Trust (NYSE:AHT). This hotel REIT did what virtually all of its peers failed to do during the financial crisis: maintain plenty of liquidity. They hedged interest payments with complex derivatives that actually added revenue to the company. They paid 100% of all preferred stock, and went from a low of $0.86 to a high of $14 after the crisis. With 92 hotels in their portfolio, and no recourse debt coming due in the next year, this is a solid buy for me. It already is 45% off its high, and yields 5.1%.
Finally, I’d add Dollar Tree Stores (NASDAQ: DLTR). I’ve compared all the dollar stores elsewhere, and Dollar Tree is not only undervalued, it has the best balance sheet and best margins. Dollar stores did great in the recession. The company rebounded to $70 off its $15 crisis lows.
So set your brokerage accounts to “buy” should the market tank further.
Lawrence Meyers does not own any of the stocks mentioned – yet – but he is lying in wait. In the meantime, he encourages you to buy his boo, Teacher of the Year, an inspiring memoir that has nothing to do with the stock market.