CNBC “Mad Money” host Jim Cramer recently made the argument that the stocks to buy are companies you can’t live without.
The long-time stock prognosticator believes that betting on defensive stocks whose products and services we will buy in good times and bad makes them a much better bet than index funds. That’s because, with an index fund, you get good and the bad.
Of the 11 sectors in the S&P 500, consumer staples stocks are down 13.4% year to date through March 31. Only healthcare (down 13.1%) and information technology (down 12.2%) have done better. Taking the entire S&P 500 into account, consumer staples stocks have beaten the index in the first three months of 2020 by 660 basis points.
“On a horrific day where the averages were down 12% to 13% … we’ve got to stop buying average,” Cramer said. “Instead, we should buy quality recession-proof stocks because that’s what works when the economy’s on hiatus.”
I generally subscribe to Cramer’s theory. History has shown that consumer staples generally outperform in recessions. However, I’ve added several wrinkles to round out my list of the 10 stocks to buy whose companies we can’t live without.
Stocks to Buy: Apple (AAPL)
I first became an Apple (NASDAQ:AAPL) devotee about a decade ago when I bought my first MAC desktop. It was a beautiful thing. It made my writing life so much easier. However, it wasn’t the first Apple product I had used in my household. As a kid, I remember my dad bringing home an Apple II. That was cool.
But I didn’t really become an Apple guy until my wife bought me an iPhone 10 XR for Christmas 2018. She has dreaded that day ever since. I’m glued to the sucker. In 2019, I signed up for Apple News+. It helps me to find news quickly.
Right now I’m on a three month Apple Music trial. Although I’ve already tried the non-commercial version of Spotify (NYSE:SPOT), if I do decide to take out a monthly music subscription, I’ll likely go with Apple because, well, I’m an Apple guy.
However, I can say that I couldn’t follow through with Apple TV+, despite the fact I really liked The Morning Show with Reese Witherspoon, Jennifer Aniston, and Steve Carrell.
In December, I stated that I didn’t see AAPL stock hitting $150 without a severe recession coming into play. Down 13% year to date, Apple has too much cash to fall to this level.
In the meantime, I’ll continue to contemplate whether to buy a new iPad to whittle away the hours at home.
Alphabet (GOOG, GOOGL)
At the moment, in terms of total return, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is delivering the exact same performance as Apple in 2020. As I said above, anything below a decline of 20% through the first quarter ought to be looked upon as a victory, not a defeat.
As companies I can’t live without go, Alphabet would have to be at the top of my list. I’ve been using Google Drive and Google Docs since 2011 to take care of my daily writing. Everywhere I go, it’s there. Even on my iPhone. Why would I use anything else?
I might sound like a simpleton, but it keeps me in business. Nothing fancy but it gets the job done.
However, when you consider what Google’s cloud means to the world during the novel coronavirus pandemic, Alphabet’s stock becomes a whole lot more valuable.
InvestorPlace’s Ian Bezek recently stated that Alphabet, which owns one of three largest cloud companies in the U.S. and the world’s largest digital advertising business, is cheap at 21 times its forward earnings.
I couldn’t agree more.
That said, I do like to eat a bunch of the Frito Lay products, including Lays, Doritos, Cheetos, Tostitos, Rold Gold, Miss Vickies and Ruffles. Mind you, I don’t eat all of those at once, but I’m not ashamed to admit I enjoy the occasional potato chip.
On March 11, Pepsi announced that it was spending $3.9 billion to acquire Rockstar Energy Beverages. Pepsi plans to take the brand to the next level. I had always thought Pepsi owned the brand, However, it had been the brand’s distributor since 2009.
Now it can go head to head with all the other big players in the energy drink market while also snagging distribution contracts from up and coming energy brands. In addition, it allows Pepsi to help its Mountain Dew brand expand its energy drink presence.
It’s a smart acquisition.
Psychologists probably won’t like the fact that alcohol delivery services are booming during the coronavirus outbreak that has most people staying home. But that’s precisely what’s happening.
Drizly has seen sales grow by almost four times what it was doing earlier in the year. Not only that, but customers are also spending 30% more than normal. As someone who loves bourbon, I can understand the spike in volumes.
Normally, people would go out with friends to a bar or restaurant to grab a drink but since that’s not possible, people are enjoying a libation at home instead.
Right now, my bourbon of choice is Bulleit, made by Diageo (NYSE:DEO), whose Johnnie Walker Scotch is probably its best-known brand. And while it’s true that consumers buy a slightly cheaper brand during economic downturns, it’s also true that consumers won’t stop buying alcoholic beverages during lean times.
In good times and bad, Diageo’s products are in demand. However, that doesn’t mean its stock price can’t fall in value. Year to date, DEO stock has dropped 23.7%.
Trading at 4.6 times sales, it’s not cheap, but it’s worth it over the long haul.
Ever since McCormick (NYSE:MKC) bought French’s mustard and Frank’s Red Hot Sauce from Reckitt Benckiser (OTCMKTS:RBGLY) in July 2017 for $4.2 billion, the spice maker jumped on to my stocks to buy radar.
I can’t live without my hot sauce. I put it on everything and while I’ve tried plenty of other brands in the past, I always go back to Frank’s, especially when I can get a deal at Costco (NASDAQ:COST).
In January, I recommended seven food stocks to buy. McCormick was one of the names on the list. Year to date, it has done better than the U.S. markets as a whole, but it still has a loss of 16.8%, so it’s not perfect.
However, long term, its three-year, five-year and 10-year total returns far exceed the markets as a whole. With products like Frank’s, French’s and Billy Bee Honey, you can’t go wrong.
Of all the stocks on this list, Starbucks (NASDAQ:SBUX) is the company I truly can’t live without. It is the place I go to think about life. I’ve been going to Starbucks locations since I lived in Vancouver in the mid-1990s.
Howard Schultz put the company’s first stores outside the U.S. in Vancouver. If those failed, it might not be the company it is today.
I’m a big believer in companies that support gender equality. Starbucks does that and more. COO Rosalind Brewer is on the Nation’s Restaurant News annual list of the most powerful people in foodservice. She’s also the likely heir apparent to current CEO Kevin Johnson.
Starbucks was one of only three large American companies (out of 50) to get an “A” on the latest edition of Arjuna Capital’s annual Gender Pay Scorecard.
Recently, I said that investors ought to be thinking about buying SBUX stock below $50. Trading around $62 as I write this, it has a long way to fall. I don’t know if it will get there, but if it does, you ought to be buying.
My wife and I just finished watching a TV show on Netflix (NASDAQ:NFLX) called Unorthodox, a story about an Orthodox Jew in Brooklyn who leaves her community for a new life in Berlin. A limited series of four episodes, if you can get through part one, it’s well worth it.
I’ve been bullish about NFLX stock for several years. While all kinds of competition have jumped into the arena in the past year, none of them have been able to knock Netflix off its perch. The coronavirus is only going to cement its position as one of the world’s top streaming services.
As I said in January, I believe Netflix is a better buy today, than it has been in many years.
“Frankly, I see Netflix being cheaper than it’s ever been, save for last August when it traded in the mid-$250s. Long-term, I’m confident it can get to $500, $1,000, and beyond,” I wrote on Jan. 21. Up 16.1% year to date, it’s doing a fine job compared to the rest of the market.
As long as it continues to grow its operating profit per subscriber, I don’t see why its stock can’t keep rising.
Ever since Satya Nadella took over Microsoft (NASDAQ:MSFT) in 2014, the maker of Windows has been an entirely different business from the one he took over from Steve Ballmer. And shareholders, including Bill Gates, are thankful.
In 2014, just after Nadella’s appointment as CEO, CNBC asked whether Nadella would be a better CEO than Ballmer? I think it’s safe to say the answer is yes. Since Nadella took the reins, MSFT stock is up 313%. From almost nothing, Microsoft has built a cloud business that’s second in size behind only Amazon (NASDAQ:AMZN).
So, how can’t I live without Microsoft?
Well, despite using a MAC desktop for a long time, I’ve switched to a laptop that’s loaded with Windows 10. Again, I don’t have a lot of bells and whistles, but it gets the job done. I hesitated to buy a Windows-based laptop but it’s been just fine.
As InvestorPlace’s Tom Taulli recently stated, the prospects for Microsoft stock still look solid for the long haul. I couldn’t agree more.
Nadella is easily one of America’s better CEOs.
Despite all the publicity Clorox (NYSE:CLX) is getting for its bleach and disinfectant products, I argued that CLX stock is a long-term buy to hold beyond the coronavirus outbreak.
My rationale was simple: It is one of the most consistent stocks you will ever find.
“Over the three-year, five-year, 10-year, and 15-year periods, CLX has outperformed the U.S. markets on an annualized basis. Currently yielding 2.5% despite its impressive run in 2020, it is one of the best Dividend Aristocrats you can own,” I wrote March 25.
The thing about Clorox is that it’s so much more than disinfectants and bleach. Some of its other products include Glad garbage bags, Burt’s Bees skincare and Brita water filters. These are things you’re going to need in good times and bad.
It’s a stock that will let you sleep at night. At times like these, it’s worth paying a premium for quality.
As I write this, Costco has announced that starting Friday, April 3, it will limit the number of people who can enter the store per cardholder to two people as part of its fight against the coronavirus.
“This temporary change is for your safety and the safety of our employees and other members, and to further assist with our social distancing efforts. Thank you for your cooperation and understanding,” the company’s website stated.
As part of this effort, people aged 60 and older and those who have a physical impairment, will have the store to themselves from 8 a.m. to 9 a.m., Tuesday through Thursday. Unfortunately, the food court won’t be available.
If there’s a grocery retailer that can get the coronavirus right, my guess is it would be Costco. They treat their employees better than most, and when you think about your employees first, you generally also do right by your customers.
While I can’t stand the crowds at Costco, I do like to go to see what new deals they have on sale. That’s something I can’t say about other grocery stores.
In my opinion, Costco is the ultimate defensive play.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.