3 stocks to refuel on when the stock market crashes
Stock market crashes often happen without warning. For this reason, investors must stay prepared for the next one. One of the best ways to do this is to have a list of stocks to buy when the market starts to melt.
We asked three of our Motley Fool contributors which stocks they think investors should load up on in a stock market crash. They have chosen NextEra Energy (NYSE: NEE), Brookfield infrastructure (NYSE: BIP)(NYSE: BIPC), and caterpillar (NYSE: CAT). Here’s why these were at the top of their emergency shopping list.
Buying opportunities don’t present themselves often
Brewer Ruben Gregg (NextEra Energy): There is a big problem with the American giant NextEra Energy: its stock is rarely cheap. There are good reasons for this, but if the market turns irrational and the company’s stocks plunge, investors should prepare ahead of time to jump into this dividend-growing investor’s dream stock. Why?
For starters, the company owns Florida Power & Light, which operates the largest electric utility in its namesake state. Florida has benefited for years from the move of people to its hot climate and low taxes. This company is not a growth machine, but it is a very solid foundation on which NextEra has built one of the largest wind and solar energy companies in the world. And it intends to continue to grow these green businesses, with up to 30 gigawatts of clean power construction on the drawing board to add to its current capacity of 26 gigawatts.
But the dividend is the real proof of the quality of a NextEra business. The public service has increased its dividend every year for over 25 years, making it a dividend aristocrat. The annualized rate of increase over the past decade was a whopping 10%, a rate NextEra believes it can match until at least 2022 (if not more). This is a huge number for a public service and it helps explain why the dividend yield is a 2.1% miser because income investors are generally willing to pay for consistent dividend growth. However, if the stock were to follow the market, even those who favor yield over growth could find themselves with a buying opportunity.
Built for turbulent times
Matt DiLallo (Brookfield Infrastructure): Brookfield Infrastructure has a knack for capitalizing on market opportunities. For example, when stocks crashed at the start of the pandemic last year, Brookfield went on a buying spree. He invested $ 450 million in shares of a handful of publicly traded infrastructure companies in the hopes that it would lead to larger-scale investment. The company would pull out of several of those investments a few months later, making $ 40 million in profits.
During this time, he retained his position in the Canadian pipeline company Inter-pipeline (TSX: IPL) in the hope of making a deal. Although she is currently engaged in a auction war along with another suitor, this fight increased the value of Brookfield’s holdings. If he does end up losing, Brookfield can still profit from another very successful investment.
Brookfield’s ability to go on the offensive when others turn to defense has allowed him to make several interesting acquisitions over the years. These deals helped fuel accelerated growth as market conditions improved, allowing the company to generate overwhelming returns over the long term.
While Brookfield’s business thrives during crashes, its stock prices tend to follow the market down. For this reason, market meltdowns are a great time to stock up on Brookfield stocks. This allows investors to profit from the ensuing recovery as Brookfield’s business accelerates, usually thanks in part to the deals it closed during the recession.
A staggered dividend aristocrat to buy in the trough
Neha Chamaria (caterpillar): When the stock market collapses, cyclical stocks almost always plunge deep as they generally reflect the health of the economy. Opportunistic investors, however, would be smart to pick up stocks when the time is right, as cyclical stocks also rebound quickly when markets recover. This is especially true if the underlying companies have a timely growth opportunity ahead. Consider Caterpillar, for example.
As the world’s largest manufacturer of construction and mining equipment and a major player in the energy and transportation industries, Caterpillar is a leading economic indicator. This explains why Caterpillar stocks have almost always been roughed up in stock market crashes, but have also outperformed once things turn around. If the market collapses in the near future, there are two big reasons why you would want to buy Caterpillar stock.
First, Caterpillar operates in a booming industry right now in terms of potential future opportunities, and that industry is infrastructure. Caterpillar could be a big beneficiary of President Joe Biden’s infrastructure bill. The amount of infrastructure spending, commercial construction and housing starts are having a significant impact on the demand for Caterpillar equipment, so any increase in infrastructure spending bodes well for the company. whatever the evolution of the stock market.
Second, Caterpillar’s resilience, even in times of crisis, is evident from its dividend history: Caterpillar is a dividend aristocrat who recently increased its dividend for the 27th consecutive year, meaning it has rewarded shareholders with higher payout even in historic stock market crashes like 2008 So the next time the stock market and Caterpillar stocks tumble, you will still receive dividend checks in the mail and enjoy a high dividend yield in the meantime a recovery. Here are some stats you need to think about: Caterpillar’s dividend yield, which currently hovers around 2%, climbed to almost 4% last year and topped 5% in mid-2016 when markets rallied. collapsed.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.