With the markets trading near all-time highs, it doesn’t seem like this bull run will be ending any time soon. Even the novel coronavirus pandemic could not slow down Wall Street, which is powering along despite enormous external pressures. However, there is still a chance that a stock market crash could be around the corner. As a result, investors are on the edge of their seats, waiting for the bubble to pop.
Of course, so far the markets are maintaining their momentum. In part, you can chalk that up to President Joe Biden and his administration injecting the economy with some much-needed stimulus. But that does not mean we cannot enter a recessionary period. Today, the S&P 500 is trading at a historic price-to-earnings (P/E) ratio, more than double the average Shiller P/E (16.82 times).
Now, whether the stock market will crash is something none of us can predict to a tee. However, as investors, we can go ahead and make sure our portfolios have all the right stocks to combat any potential slump in the forthcoming quarters. After all, when picking stocks, you have to diversify into several business areas in order to reduce risk and volatility.
For all these reasons, this list has companies from various sectors with solid track records of success. Both income investors and those looking for long-term growth should find these picks appealing:
- Visa (NYSE:V)
- Facebook (NASDAQ:FB)
- Home Depot (NYSE:HD)
- Costco Wholesale (NASDAQ:COST)
- Nvidia (NASDAQ:NVDA)
Best Stocks to Buy for a Stock Market Crash: Visa (V)
Picking a stock like Visa is a no-brainer, as it is one of the best performers during periods of volatility. One has to remember the global payments technology company generates revenue based on the amount businesses and consumers spend with the merchants on its network. I am not saying Visa will not feel the pinch if there is a recession. However, it has a track record of bouncing back quickly when that happens.
For instance, after Visa’s transaction volume bottomed out in April last year, online transactions helped the company make a better-than-expected recovery. Plus, the company is outpacing pre-pandemic numbers now that the economy is recovering and getting back to full flow.
For its fiscal second quarter, Visa disclosed that payment volume and processed transactions jumped 16% compared to the same period in 2019, underlining its sharp resurgence during the post-pandemic recovery period. Overall, in the last five years, sales and earnings per share (EPS) have soared by about 8.4% and 11.3%, respectively.
The bottom line is that V stock is an excellent investment which is well-positioned for the future. Covid-19 rattled the company, but Visa had the financial strength to shrug off the effects. If we do see a stock market crash in the coming months, this is name that you will need in your portfolio.
Although it may not be as fashionable anymore, Facebook is still the most dominant social media company globally. For example, it had more than 2.7 billion monthly active users in 2020. Additionally, Facebook had an average of 1.84 billion in daily active users (DAUs) for December 2020, representing an increase of 11% year-over-year (YOY). Plus, WhatsApp and Instagram — two platforms that are also owned by the social media giant — have users in the billions as well.
So, a sizeable chunk of the world’s population uses a Facebook-owned asset at least once a month. No wonder the company could generate ad revenue of $84 billion last year, despite a stressed overall economic environment.
The best part? FB has not even begun fully monetizing WhatsApp or Facebook Messenger yet, despite them both being top-five destinations for social media users. That means there is still a lot of upside to FB stock, despite Facebook being a relatively mature player in its industry. That potential as well as its secure numbers offer plenty of stability in case of a stock market crash.
Best Stocks to Buy for a Stock Market Crash: Home Depot (HD)
Home Depot is the world’s largest home improvement specialty retailer, with more than 2,200 stores in the United States, Canada and Mexico. In the last five years, this company’s top and bottom lines have grown by 8.3% and 17%, respectively.
That said, though, the pandemic was a game-changer for the retailer. During the crisis, there was an unparalleled increase in home and backyard projects, since people had more time on their hands. As such, while most companies struggled to stay afloat, Home Depot was able to report excellent numbers quarter after quarter.
For example, in Q4 2020, HD’s net sales increased 25% to $32.26 billion. That was up from $25.8 billion in the year-ago period and outpaced estimates of $30.73 billion. What’s more, same-store sales in the United States also surged 25% while overall same-store sales increased by 24.5%. With Americans still investing heavily into their homes, we can also expect these trends to continue for the foreseeable future.
When announcing Q4 earnings, Home Depot COO Ted Decker said the following: “As our customers continue to spend more time at home, they’re telling us the project lists are growing. After completing the project, we see many of our DIY customers take on additional and often times more complex projects with a renewed sense of confidence.”
So, with solid performance and a promising outlook, having HD stock in your portfolio is another no-brainer — especially if you’re anticipating a stock market crash.
Costco Wholesale (COST)
Costco Wholesale will always be a great all-weather name, in part because a lot of necessary buying drives its top line. When there is a stock market crash, consumers usually hold off on purchasing luxury items. However, they will never stop buying basic goods such as food, beverages, essential clothing and household care items — all of which are Costco wares.
Much like Home Depot, Costco benefitted immensely from the pandemic. However, even before the novel coronavirus, it was not like this warehouse retailer was struggling. Instead, sales have grown steadily in the last five years, at 8.8%. That has translated into consistent bottom-line performance. In turn, the company is able reward its stockholders through share repurchases and juicy dividend payouts.
Today, COST stock has a dividend yield of 0.82%. For years, this retailer has hiked its distribution and has paid substantial special dividends along the way. Its payout ratio of 31.54% is also quite conservative, meaning there’s no immediate threat of a cut or suspension. So, COST should be highly valued by investors who are looking for stability and a steady passive income in case of a stock market crash.
Best Stocks to Buy for a Stock Market Crash: Nvidia (NVDA)
Normally, Nvidia would really be my first pick on this list. However, the world’s leading semiconductor company suffers due to its premium valuation. As of this writing, shares are trading at 41.88 times forward price-to-earnings. That’s even after the stock has shed almost 12% in value over the last month.
That said, apart from overvaluation concerns, you really don’t have any other reason not to like this one.
For example, Nvidia’s recent quarterly results reinforce the fact that the chipmaker is a tour de force in its industry. Data centers and artificial intelligence (AI) remain the lynchpins for its future growth, while other segments like its transportation business have significant potential as well. However, gaming is what brought Nvidia to the dance.
Overall, there are plenty of revenue streams that will contribute heavily to Nvidia’s bottom line in the future, most of them relating to high-margin businesses. Consequently, NVDA stock is one of the most reliable names out there if you fear a stock market crash.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.