Wall Street and Main Street are witness to some truly unprecedented times — and I don't say that lightly.
Whereas news outlets have jumped at the chance to overexaggerate the magnitude of triple-digit point moves in the iconic Dow Jones Industrial Average over the past decade (e.g., referring to a 200-point decline as a “plunge”), we've witnessed the first true stock market crash in a long time over the past six-plus weeks.
It took equities just over three weeks to plunge into bear market territory — a decline of at least 20% — which is by far the quickest descent into a bear market we've ever witnessed. All three major indexes also pushed lower by at least 30% in roughly one month. Historically, 30% declines from a recent high in the stock market have averaged approximately 11 months.
It's been ugly.
But at the same time it's become the opportunity of a generation if you're a long-term investor. That's because every previous bear market has eventually been completely erased by a bull-market rally. No matter how steep or protracted the decline, the organic growth potential of the U.S. economy and high-quality businesses has always pushed the major U.S. indexes higher. This means the time for opportunistic investors to put their money to work is now.
For investors with spare cash in the wake of the 2020 stock market crash, there are a number of stocks that are no-brainer buys. Here are five from a variety of sectors.
Johnson & Johnson
First up is healthcare conglomerate Johnson & Johnson (NYSE:JNJ), which happens to be one of only two publicly traded companies with a higher credit rating (AAA) from Standard & Poor's than our own U.S. government (AA). In effect, S&P has more faith in J&J making good on its outstanding debt than it does of the U.S. government repaying its existing debts.
If that doesn't give you some peace of mind with regard to J&J's finances, perhaps this will. Since people don't get to choose when they get sick or what ailments they develop, healthcare stocks should be among those least affected by the coronavirus disease 2019 (COVID-19), or any stock market crash for that matter. People who needed pharmaceuticals last month are just as likely to need them in April and beyond.
But perhaps the biggest allure of Johnson & Johnson is how each of three operating segments contributes to the whole. Consumer healthcare is slow-growing, but also highly predictable with solid pricing power. Medical devices has generated stagnant revenue growth of late, but represents the perfect long-run opportunity for an aging population. Finally, pharmaceuticals have a finite period of exclusivity, but they provide the bulk of J&J's growth and margins.
Companies that provide a basic-need good or service are another no-brainer investment opportunity during a stock market crash. Take electric utility provider NextEra Energy (NYSE:NEE) as an example. No matter how poorly the U.S. economy is performing, homeowners and renters will still need electricity for their homes. This creates a very predictable range of consumption for NextEra, which helps it plot out its capital spending on projects.
Speaking of projects, NextEra Energy is the leading provider of solar and wind energy in the country. Although these green energy projects have been pricey, they're lowering NextEra's energy generation costs well below that of its peers. Not to mention, historically low lending rates could open the door to additional renewable energy projects in the foreseeable future.
Lastly, keep in mind that NextEra's traditional electricity-generating operations are regulated (“traditional,” as in not powered by a renewable source). While this doesn't allow NextEra to pass along price hikes at will, it also means no exposure to the potentially volatile wholesale prices.
Adding safe, high-yield dividend stocks to your portfolio is always a great idea during a stock market crash. That's why I'd steer investors to take a closer look at telecom and content giant AT&T (NYSE:T).
AT&T is predominantly dependent on its wireless division to drive its margins higher, and that's not necessarily a bad thing right now. AT&T is currently upgrading its U.S. infrastructure to be 5G-capable, which represents the first major upgrade of wireless infrastructure in about a decade. Investors should expect the technology-upgrade cycle to follow to last many years, with AT&T liable to see a surge in data usage. This is all good news for a company that generates juicy margins on data usage tied to its wireless plans.
AT&T is also readying to launch its HBO Max streaming service in May 2020, and can likely use its Time Warner assets (CNN, TBS, and TNT), acquired in 2018, as a dangling carrot to further attract streaming users.
With a history of consistent profitability, AT&T's 7.4% yield looks like a steal of a deal for income seekers.
Companies with clear-cut competitive advantage are also no-brainer buys during a stock market crash. That's probably why e-commerce behemoth Amazon.com (NASDAQ:AMZN) has performed so well since the midpoint of February.
Most folks are likely well aware of Amazon's e-commerce dominance, especially now that they're cooped up in their homes and doing their part to slow the spread of COVID-19. According to eMarketer in June 2019, Amazon controls around 38% of all e-commerce. Plus, with over 150 million Prime members, Amazon has found a way to supplement its retail margins while keeping consumers hooked to goods and services within its ecosystem.
However, retail isn't Amazon's big-picture opportunity. Rather, it's cloud-service operating segment Amazon Web Services (AWS). Cloud margins are many multiples higher than retail margins, meaning that as AWS grows into a larger percentage of total sales, Amazon will see its cash flow explode higher.
A final no-brainer stock to buy during a stock market crash is conglomerate Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B). The reason for buying into Berkshire is simple: You're effectively making Warren Buffett, one of the most successful investors of our time, your portfolio manager.
One of the ways Berkshire Hathaway generates income is through its investment portfolio, which currently holds 52 securities. Buffett, who oversees a majority of the investment decisions, has made a living off of buying stocks when others are fearful. In fact, Berkshire Hathaway's 2019 shareholder letter shows that, while the S&P 500 has returned 19,784% over the past 55 years, inclusive of dividends paid, Berkshire's per-share market value is up over 2,744,000% in the same time span. Buffett is simply that good at identifying value during times of extreme fear.
Berkshire Hathaway has also acquired roughly five dozen businesses from a variety of sectors and industries that contribute to its operating results. Thus, buying into Buffett's company provides instant diversification without any management fees.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams owns shares of Amazon and AT&T. The Motley Fool owns shares of and recommends Amazon and Berkshire Hathaway (B shares). The Motley Fool recommends Johnson & Johnson and NextEra Energy and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), short June 2020 $205 calls on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.