The stock market has taken a concerning dive in recent weeks, and this downward trajectory may persist going forward, so it’s time to consider stocks to buy before a market crash.
Many investors are gripped by fears that interest rates will remain elevated for an extended period while inflation proves stubbornly resistant to coming down from 40-year highs. These anxieties have only intensified following the latest GDP report, highlighting an economic slowdown. Specifically, inflation-adjusted gross domestic product grew at a disappointing annualized rate of just 1.6% — far below expectations of 2.2% growth and a marked deceleration from previous quarters.
Adding to the unease is the fact that we’ve experienced a sustained market rally for many months. It’s somewhat reminiscent of the frenzied run-up in 2021. This confluence of factors sets the stage for a sizable market correction in the coming months as gravity finally takes hold.
Consequently, it may be prudent for investors to take some profits off the table and shift capital into more stable stocks before redeploying into beaten-down growth plays at cheaper valuations. It’s time to make tactical portfolio adjustments and determine the stocks to buy before a market crash.
Costco (COST)
Costco (NASDAQ:COST) is a company that operates a chain of membership-only big-box warehouse club retail stores. It sells various products, including electronics, computers, furniture, outdoor living items, appliances and jewelry. This company has very sticky demand. This is mostly due to Costco’s membership model.
It costs consumers less to buy from Costco due to its bulk selling strategy and membership program. The stock has seen such strong performance in recent months: inflation squeezes people. Costco is up 46% in the past year. This sort of price performance for a retail company is very impressive.
Of course, I do not expect it to keep going up like this soon, but it can be a safe long-term holding to hold your portfolio together during the next downturn. Costco is expected to keep growing EPS at 10% annually and revenue growth at 6.5% annually on average in the coming years. It also yields a modest 0.64% in dividends.
Coca-Cola (KO)
There is no need to explain Coca-Cola (NYSE:KO) or what it does to anyone, no matter where they might be from. This company arguably has the most recognizable brand name on the planet. The demand here has been exceptionally sticky through many downturns and recessions. Coca-Cola’s products are discretionary only in name.
Many people can’t imagine a meal without Coca-Cola, so I see it as more of a staple. It is hard to imagine the company to take a demand hit even during a bad downturn.
Don’t expect much gains here either, as the stock has been flat for the past year. However, stability is what matters during a downturn. Coca-Cola has an attractive 3.14% dividend yield you can sit on while the storm passes. Analysts expect mid-single-digit sales growth and slightly higher EPS growth in the coming years.
Ares Capital (ARCC)
This pick may surprise many as it is not a big or well-established company. However, it has very attractive and stable financials. Ares Capital Corporation (NASDAQ:ARCC) is a Business Development Company (BDC) that provides financing solutions to middle-market companies. It offers funding in the form of loans and private equity. Ares Capital has a well-diversified portfolio with lower exposure to some of the riskiest industries than its peers.
Moreover, the company primarily lends to underserved midsize businesses in the U.S. and benefits as high interest rates help it earn even higher returns on its loans. The stock has delivered 16% in gains in the past year, and I see further stable growth down the line. Of course, financial firms will take a hit during a downturn, but I do not think Ares Capital will be hit too badly. It has learned from 2008, recovered very well from the 2020 downturn, and weathered the 2022 correction quite well.
Warren Buffett’s New England Asset Management also has a stake in the stock, which boosts my conviction here.
Procter & Gamble (PG)
The company makes many things people use every day. They make things like shampoo, toothpaste, diapers and cleaning products. It has very sticky demand and is one of the best consumer stocks you can buy to add more ballast to your portfolio. It is hard to find an article on stable stocks to buy before a market crash without Procter & Gamble (NYSE:PG) in it. The stock has delivered 54% gains in the past five years and has been on a stable growth trajectory.
Analysts expect revenue growth of around 4% annually going forward, along with EPS growth of around 6% on average. Paying 25 times forward earnings is pretty reasonable, considering you’re also getting a 2.47% dividend yield on the stock and an 18% net margin, better than 92% of the company’s peers.
Clorox (CLX)
Clorox (NYSE:CLX) is another very well-known brand, and why this company’s demand is so sticky does not need to be explained. It’s another “boring” pick to shift your profits into to weather the storm. The stock has essentially been flat over the past five years except for the increase in share price in 2021, which was reversed quickly. The current share price makes it more or less fairly valued. You can just buy the stock and sit on its 3.25% dividend yield.
The company also plans to increase advertising moving forward. According to management, the company’s advertising spending as a percentage of sales is expected to increase to about 11% in fiscal year 2024 vs from 9% last year to boost sales more. It has a fair amount of debt at $3.1 billion that it pays interest on, so rate cuts going forward should also help growth moving forward.
Regardless, any change in growth is unlikely to be notable. This company is very stable, and I expect the shares to remain stable. There shouldn’t be any rapid moves to the upside or the downside, barring a major recession, in which case it shouldn’t decline too much.
Kimberly-Clark (KMB)
Kimberly-Clark (NYSE:KMB) is a competitor to Procter & Gamble. This company makes consumer goods in the personal care sector. However, there are some differences between the two. For example, Procter & Gamble has many brands and products. Also, Procter & Gamble has been able to grow sales and keep costs down better than Kimberly-Clark. This has helped Procter & Gamble stay strong, even when times are tough.
However, it is important to remember that both companies are very stable and can weather downturns excellently compared to most other companies. The stock’s performance has not been as good as Procter & Gamble’s, but that is somewhat made up by the higher dividend yield at 3.58%. HSBC recently raised the stock price target for shares of Kimberly Clark to $150 from $146, citing the potential for a margin recovery and benefits from a cost savings program at Kimberly Clark.
Air Canada (ACDVF)
Airline companies are rarely the most stable and rarely discussed when discussing stocks to buy before a market crash. However, I believe you should look deeper into Air Canada (OTCMKTS:ACDVF), as the stock has been beaten down quite a lot and is likely to recover in the coming years as rates come down. The stock has been trading flat at bargain-basement prices, and I do not think it can go down much from here, even during a downturn.
Gurufocus estimates its fair price value to be $30. You’re only paying 3.4 times earnings for the stock. Moreover, the company is paying $150-170 million per quarter on interest expenses, which it can save once rates come down.
It does have a solid cash position at $6.4 billion against $10.3 billion of debt, but the interest pressure on earnings still makes it look bad to Wall Street. Once rates come down, I believe Air Canada can outperform the market while having a margin of safety as earnings grow.
On the date of publication, Omor Ibne Ehsan did not hold (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.