As uncertainty seems to dominate, it might be time to look for stocks to own during a downturn.
For 10 straight months, investors enjoyed a strong comeback rally in the S&P 500. After plunging sharply into bear market territory last year, the broad-based index roared ahead 28% in 2023 to hit a peak at the end of July.
The rally stalled afterwards, but gave up only a few percentage points of the gains. Still, it’s understandable that investors are nervous heading into October. Some of the biggest market crashes occurred this month.
The collapse of 1929 that ushered in the Great Depression happened in October as did Black Monday in 1987.
Although we can’t predict when the next big downturn will occur or how long it will last, we do know they are a normal part of the market cycle.
It’s why it is important to keep our eyes focused on the horizon. Because every crash is eventually followed by a bull market.
Corrections test our mettle, but they remain the perfect time to buy stocks. The following seven companies are among the best to own during a downturn.
Payments processor Mastercard (NYSE:MA) should be one of the first defensive stocks an investor should own in a recession. Despite consumers curtailing spending in a period of economic hardship, the downside is protected.
Because it narrowly sticks to its knitting of only processing payments, it shields itself from liability associated with credit defaults and delinquencies if it also made loans.
It may lose out on interest income during market expansions, but there is no need to set aside reserves for losses during downturns. Operating margins consistently stay north of 50%, with its five-year average standing at 55.7%.
Market corrections typically last only a few months. Bull markets go on for years. Since 1928, the average bear market lasted 15 months while the subsequent rally went on for three years. Even better, since 1970, bull markets tend to last more than six years on average.
That means any softness resulting from a crash will be short-lived compared to the sustained growth that follows. It makes Mastercard a solid choice for investors to buy.
Berkshire Hathaway (BRK-A)(BRK-B)
Since Warren Buffett became chairman of Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) in 1965, he generated returns double those of the S&P 500. Overall, through the end of 2022, he generated 3.7 million percent return for investors.
What’s less known is that Berkshire excels during bear markets. Data from Bespoke Investment Group shows that every time the S&P 500 dropped 20% or more, Berkshire stock beat the index by a median of 14.89 percentage points.
It achieved this distinction through a combination of focusing on long-term investment horizons, keeping a lot of cash on hand, and favoring dividend stocks. Buffett will receive $5.7 billion in dividend checks alone this year.
With Berkshire’s Class A shares going for more than $525,000 each and the Class B lot trading at $346, I recommend investors buy the latter. The two walk virtually lockstep in returns and their lower price obviously makes them much more accessible.
Zoetis (NYSE:ZTS) is a perfect stock to own regardless of market conditions.
Zoetis is one of the world’s biggest animal health companies possessing a portfolio of therapies, vaccines, diagnostics, and technologies in use in over 100 countries. It generates over $8 billion in annual sales and growing.
During downturns, owners will downgrade from premium products to discounted brands. They will limit discretionary purchases.
We’re seeing that show up in the results of Chewy (NASDAQ:CHWY) and Petco (NASDAQ:WOOF). What they won’t do is cut back on their pet’s health and wellness. If Fido is sick, they will still take him to the veterinarian for care.
For example, Petco saw vet visits jump 26% last quarter even as sales in its discretionary spending category were pressured.
Zoetis’ own sales grew 6% last quarter to $2.2 billion with per share earnings rising 29% over last year.
Shares of Zoetis are up 20% this year, and investors should buy in on any weakness.
Cybersecurity remains an area that businesses can’t scrimp on. While they may spend less during downturns, they must maintain their networks and protect their data. As more companies move their data to the cloud, CrowdStrike (NASDAQ:CRWD) will benefit from it.
Family genetics site 23andMe Holding (NYSE:ME) just reported millions of individual data points from an unknown number of customer accounts were compromised. They are selling the stolen data on the Dark Web.
23andMe denies the company was hacked. It says stolen passwords were likely used to access the accounts. It highlights just how vulnerable information is online. The Identity Theft Research Center’s says data breaches are on pace to set a new record this year.
CrowdStrike has over 23,000 customers including over half of all Fortune 500 companies. It also gets them to spend more.
Some 63% of customers buy five or more of its modules, 41% use six or more, and nearly a quarter of them use seven or more modules. CrowdStrike previously changed to a subscription-based model.
That switch is bearing fruit with annual recurring revenue growing 37% last quarter to $2.9 billion. Subscription gross margins just hit 78%.
The leading cybersecurity specialist is a recession-resistant stock, if not recession-proof.
Genuine Parts (GPC)
In good times or bad, people need their cars to work. The cost of a new car averages around $48,000, a 33% increase in five years. A used car carries a list price of over $26,000. Keeping the car that you already own on the road is imperative.
Aftermarket auto parts retailer Genuine Parts (NYSE:GPC) helps consumers maintain the car they have.
The owner of the 9,600-store NAPA Auto Parts chain reported record sales of $5.9 billion last quarter, up 5.6% year over year. Adjusted earnings per share were 11% higher.
Morningstar says if you want to buy a new car, you should probably earn over $100,000 a year. The Census Bureau says U.S. median household income fell last year to $74,580.
Government spending and Federal Reserve policies are pricing Americans out of the auto market.
Shortages also continue to plague the auto industry. From computer chips to OEM replacement parts, there just aren’t as many vehicles available on dealer lots. The current strike by the United Auto Workers union will only exacerbate the situation.
Genuine Auto Parts trades at just 14 times earnings estimates and a fraction of sales. It also pays a dividend that yields 2.6% annually. Having raised the payout every year for 67 years, it is a Dividend King worth buying.
If Microsoft (NASDAQ:MSFT) was still just a computer operating system stock, I wouldn’t be recommending it.
But it’s been a long time since that was the case and the tech giant is now an integral part of business and the economy. One that not even a market crash can derail.
Personal computing is now Microsoft’s smallest operating segment with less than $14 billion in revenue last quarter.
The cloud has become its primary growth driver with sales of $24 billion, up 15% year over year. Productivity products such as its Office suite is the second biggest source of revenue.
As mentioned with CrowdStrike, business continues to move data and processes to the cloud and Microsoft’s Azure is the second largest platform behind Amazon (NASDAQ:AMZN) Web Services.
Another cybersecurity outfit, Snowflake, is increasing the amount it spends on Azure as it incorporates Azure OpenAI into its platform. OpenAI, of course, is the creator of the popular AI chatbot ChatGPT.
AI will be a huge driver of future growth.
Cloud services, artificial intelligence, and a core computing technology foundation ensure Microsoft will remain relevant regardless of the market scenarios that play out.
Cardinal Health (CAH)
Cardinal Health (NYSE:CAH) is one of the largest drug and medical product distributors in the country. It serves nearly 90% of U.S. hospitals, over 60,000 U.S. pharmacies, and more than 10,000 specialty physician offices and clinics.
Pharmaceuticals fuel Cardinal’s growth. Sales grew 15% to $49.7 billion in the fiscal fourth quarter, generating a 12% increase in segment profits; that’s $504 million. Medical products have stalled at $3.8 billion in quarterly sales.
Much of the growth seen in the drug distribution segment is a result of the class of weight-loss drugs known as glycogen-like peptide-1, or GLP-1, therapies. Novo Nordisk‘s (NYSE:NVO) Ozempic and Wegovy are two of the hottest drugs on the market.
A month’s supply costs around $1,000 and produces large payouts for distributors. Cardinal said the primary reason it was raising its full-year guidance was because of the demand for GLP-1’s.
Healthcare is another recession resistant industry and with incredible demand providing a tailwind, Cardinal Health ought to be a defensive stock to own during a downturn.
On the date of publication, Rich Duprey held a LONG position in CAH and GPC stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.