While no one can truly predict a catastrophic equities sector downturn, it’s nevertheless a wise idea to strategize certain investments that can survive a stock market crash. Primarily, all eyes center on the Federal Reserve. Recently, in a question-and-answer session hosted by the Cato Institute, Fed chair Jerome Powell committed to raising interest rates until inflation gets under control.
Further, Powell’s remarks echoed his policy speech at the annual economic symposium at Jackson Hole, Wyoming. At the time, the head of the central bank acknowledged that raising rates would cause “some pain.” However, he also cautioned that not addressing inflation could lead to substantial long-term damage. Unfortunately, Wall Street didn’t want to hear this disclosure at the time.
Again, no one can predict such a calamity with 100% accuracy and with regularity. However, the backdrop lends some credence to a stock market crash. Mainly, efforts to curb inflation through raising rates will lead to the dollar increasing in relative value. In fact, purchasing power did increase slightly from June to July.
While I’m not encouraging investors to hit the panic button, it may be time to at least consider companies that can weather a stock market crash.
|American Water Works
|Smith & Wesson Brands
Campbell Soup (CPB)
Campbell Soup (NYSE:CPB) offers a vital commodity, especially in times of economic distress. CPB stock has gained more than 9% so far this year, while during the same period, the S&P 500 index dropped 16.5%.
Fundamentally, what should attract investors to Campbell Soup is the company’s price resilience. Put another way, Campbell both offers a necessary product and operates in the reasonable side of the affordability spectrum. Therefore, it would be difficult to trade down from Campbell to another “fighter brand” because the underlying products are already attainable for most folks.
The other factor to bolster CPB as a company that can weather a stock market crash is its financials. Currently, Gurufocus labels Campbell as “fairly valued.” Also, the canned food specialist features strong profitability metrics.
American Water Works (AWK)
Continuing the line of cynical reasoning regarding the topic of a stock market crash, water represents a vital commodity. Therefore, as a public water utility, American Water Works (NYSE:AWK) should be at or near the top of the list of companies that can weather a stock market crash.
Fundamentally, water services and management are irreplaceable. Adding to the concept, with much of the U.S. experiencing drought conditions, such services became even more relevant.
Financially, American Water Works also presents an attractive profile. Another fairly valued enterprise, the company also features strong profitability metrics. In particular, its net margin of 34% ranks much higher than the industry median of 8.2%. As well, AWK features a forward yield of 1.7% and 14 years of dividend increases.
Kinder Morgan (KMI)
In recent years, the political and ideological discourse have strongly supported the integration of clean and renewable energy infrastructures. Given the ravages and continuing consequences of climate change, the sentiment is very much understandable. However, people must be realistic about the relevance of hydrocarbon energy sources.
Scientifically speaking, energy sources like wind and solar feature the lowest capacity factors. Capacity factor is a measurement of max power output over a given amount of time. Because wind and solar represent intermittent sources, they can’t compete with rival solutions. Therefore, midstream operator Kinder Morgan (NYSE:KMI) enjoys fundamental relevance.
It’s also a sound investment opportunity, whether you think a stock market crash will occur or not. Gurufocus labels KMI as “modestly undervalued.” In particular, the company enjoys strong momentum in the market and robust profit margins relative to its industry.
Huntington Ingalls (HII)
Despite the U.S. effectively engaging in a proxy conflict with Russia due to its invasion of Ukraine, President Joe Biden’s administration still has its eyes on China. House Speaker Nancy Pelosi sent Beijing a message when she recently visited Taiwan. Further, the U.S. continues to openly support the breakaway island which China claims as its own territory.
Of course, this dynamic represents a brewing geopolitical flashpoint. Nevertheless, the U.S. has a vested interest in maintaining a strong presence in the Asia-Pacific region. Cynically, this framework bodes well for Huntington Ingalls (NYSE:HII).
Billed as America’s largest shipbuilding company, Huntington Ingalls effectively undergirds the U.S. Navy. That’s going to keep HII relevant, even with a stock market crash. Indeed, with Uncle Sam’s extensive resources for military spending, this stock might be a no-brainer.
Smith & Wesson Brands (SWBI)
While the industry has encountered controversy, if you truly anticipate a stock market crash, Smith & Wesson Brands (NASDAQ:SWBI) makes a no-nonsense powerful case.
First, the hunting and shooting sports segments symbolize incredible popularity. After all, in 2018, the Washington Post stated that there are now more guns than people in the U.S. Arguably, this wouldn’t have occurred without incredible demand.
Second, Smith & Wesson already proved itself viable during times of hardship or chaos. According to data from the Federal Bureau of Investigation (FBI), retailers (and some private parties) sold around 28.4 million guns in 2019. That’s based on the number of background checks, so the unofficial number could be higher. Either way, in 2020, this figure soared to 39.7 million.
Combine that increase with Smith and Wesson’s status as a well-known firearms manufacturer, and you get a compelling case to buy SWBI stock ahead of a potential crash.
Should a stock market crash occur, Allstate (NYSE:ALL) might not seem an intuitive place for stocks to buy. During such a calamity, consumers tend to batten down the hatches. Therefore, unnecessary goods and services suffer the budgetary axe. While cutting insurance services may seem like a tempting short-term fix, arguably, people will hold onto their coverage.
To sum up what comedian Chris Rock once stated, insurance essentially represents protection in case stuff happens. But if stuff doesn’t happen, Rock inquired, shouldn’t you get your money back? Though it makes for a good punchline, that’s not quite how things work. Because if you incur a financially disruptive event – a car accident, a pipe bursting in your home – the money you pay monthly could yield significant savings.
On the fiscal front, Allstate also makes an excellent case for itself. The company features a 2.7% forward yield. When combined with its 7.7% year-to-date performance, ALL features a compelling argument. As well, Gurufocus rates Allstate as “modestly undervalued.”
Kimberly Clark (KMB)
Kimberly Clark (NYSE:KMB) already proved its relevance during times of turmoil. During the initial onslaught of the coronavirus pandemic, seemingly everyone rushed to their local retailers for toilet paper. Being the manufacturer of Cottonelle, Kimberly Clark enjoyed a downwind benefit.
Currently, Gurufocus rates KMB as “modestly undervalued.” I’d go a step further and call Kimberly Clark modestly underappreciated. For instance, even though toilet paper is no longer the equivalent of gold bullion, the company continues to march forward. For the company’s second quarter, it generated $5.1 billion in sales, up 7% year-over-year. Additionally, net income expanded 8% to $437 million.
As if investors needed another reason to consider KMB during a stock market crash, the underlying firm is a dividend aristocrat with 51 years of consecutive dividend increases. Considering companies do whatever it takes to keep this honor, KMB may be a no-brainer.
On the date of publication, Josh Enomoto 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.