One of the wildest years on record for the stock market keeps getting crazier. After the widely followed S&P 500 lost over a third of its value in the first quarter, the benchmark index is now on track to surpass its historic average annual return this year. Only in 2020, right?
Despite the market, once again, proving wholly unpredictable in the short-term, about the only certainty investors can take away from this year is that a stock market crash will happen again. We’ll never know ahead of time when a crash will occur, how long it’ll last, or how steep the decline will be, but the fact is that another crash is inevitable.
The good news is that every single stock market crash in history has proved to be a buying opportunity for long-term investors. If you have cash at the ready, consider buying the following three surefire stocks the next time the market inevitably crashes.
Bank stocks aren’t usually high on investors’ buy lists when the market is tanking — but history suggests that they should be. The next time emotions get the better of investors, consider putting your hard-earned money to work in regional banking giant U.S. Bancorp (NYSE:USB).
For starters, U.S. Bancorp (and its banking peers) has cyclicality working in its favor. Though contractions are a normal part of the economic boom-bust cycle, the length of time the U.S. economy spends expanding far outweighs the time spent in contraction or recession. In other words, betting on bank stocks like U.S. Bancorp is a simple numbers game that patient investors often win.
More specific to U.S. Bancorp, it’s typically at or near the top of the list when it comes to return on assets (ROA) among big banks. The company’s superior ROA is the result of management prudently avoiding high-risk derivative investments and focusing on the bread and butter of banking: Loan and deposit growth.
Also impressive is U.S. Bancorp’s digital engagement trends. Over the trailing two-year period, the number of customers accessing U.S. Bank online or through mobile app increased 8 percentage points to 78%. This switch to digital has been especially noticeable in the loan department. Since the end of August 2018, total loan sales originating online have jumped from 28% to 54%. Since digital transactions are substantially cheaper than branch and phone sales, U.S. Bancorp has been able to consolidate its physical branches and reduce its noninterest expenses.
It’s a best-of-breed bank stock that opportunistic investors should scoop up during a crash.
Another stock with surefire winner written all over it is specialty drug developer Vertex Pharmaceuticals (NASDAQ:VRTX).
What makes Vertex special is the company’s focus on treating patients with cystic fibrosis (CF). CF is a hereditary disease that leads to thick mucus production that can obstruct a patients’ lungs and pancreas. Though there isn’t a cure for CF, Vertex’s multitude of successful treatment options for specific genetic mutations of the disease are helping to improve the quality of life for patients.
The company’s latest breakthrough is three-in-one combination therapy Trikafta. It gained Food and Drug Administration (FDA) approval approximately three months ahead of its FDA review date after handily meeting its primary endpoint in late-stage studies. This endpoint showed a 3.7-percentage-point improvement in forced expiratory volume in one second after eight weeks of treatment.
For the vast majority of blockbuster brand-name drugs, it takes a good year or more to reach $1 billion in annual sales. Trikafta nearly did so in its third full quarter since approval ($960 million in sales in Q3 2020). Initial estimates had pegged Vertex’s key therapeutic for $6 billion in peak annual sales. However, the rapid uptake we’ve witnessed in 2020 suggests it may blow this estimate out of the water.
As the CF treatment kingpin, Vertex’s cash flow is well-protected, no matter how well or poorly the U.S. economy is performing, or how off-kilter investors’ emotions are.
There’s no need to overthink things when the stock market crashes. Buying businesses with a proven track record of outperformance is almost always a smart move to make. That’s why Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) stands out as such a perfect stock to buy.
The most obvious reason Berkshire Hathaway has performed so well throughout the years is its CEO, Warren Buffett. Buffett didn’t became one of the richest people in the world by being smarter than everyone else in the room. Rather, he did so by being patient. The Oracle of Omaha has concentrated his research on a few areas of the market (financial stocks and consumer staples), and when he finds a company he likes, he’s hold that stake for a very long time. Compounding has worked wonders for Buffett and his company, with Berkshire Hathaway’s stock up 2,744,062% since the beginning of 1965.
Berkshire Hathaway’s investment portfolio is also highly cyclical, with over 90% of invested assets tied up in financials, information technology, and consumer staples. As noted, periods of expansion tend to significantly outlast recessions. Buffett knows full-well that the U.S. and global economy will grow over time, and he’s aligned his company’s portfolio to take advantage of that fact.
Warren Buffett and his right-hand man Charlie Munger have been repurchasing a lot of Berkshire Hathaway stock, as well. In 2020, the duo have OK’d buying back $15.7 billion worth of stock, with around $22 billion in aggregate repurchases over the last nine quarters. Share repurchases have the potential to boost a company’s earnings per share and make it more fundamentally attractive to investors.
Warren Buffett’s track record speaks for itself. When the next stock market crash inevitably hits, pick up shares of Berkshire Hathaway.