5 Stocks to Buy If The Market Plunges

Stock market crashes are the stuff of nightmares for investors. Even seasoned investors find it difficult to accept the double-digit losses that accompany a stock market crash. While the US market has always recovered historically, crashes can wipe out large amounts of value on a short-term basis.

 

With global volatility increasing, investors are once again worried about the possibility of the stock market taking a turn for the worse. Fortunately, there are several things you can do to protect yourself from the worst effects of a major market downturn.

 

One of the most effective strategies for riding out bad economic times is to invest in stocks that are heavily resistant to recessions. Here are five stocks to consider buying if the market plunges.

 

Berkshire Hathaway (NYSE:BRK-B) is arguably the single best stock to own during a significant market downturn or recession.

 

Warren Buffett’s investment company has spent decades buying up companies that produce excellent cash flows in virtually all market conditions. Because the company invests across sectors, Berkshire Hathaway is also diversified enough to withstand sector-specific pressures quite well.

Another advantage to buying Berkshire in the event of a recession is the fact that Buffett and his team have historically found new opportunities in downturns. As of November 2021, Berkshire Hathaway was holding an astonishing $149.2 billion in cash that could be put to work buying new assets. If the market sells off, the company is in an excellent position to hunt for potential bargains.

 

Finally, the historic performance of Berkshire Hathaway speaks for itself. Since 1965, the company has returned an average of 20 percent annually for its shareholders. This includes periods of market turmoil, showing the sheer staying power of Berkshire. While past results are no guarantee of future performance, it’s clear that the Berkshire portfolio is built to ride out difficult times and reward investors with a long-term mindset.

 

In the event of an economic downturn, Costco (NASDAQ:COST) stands out for its recession-proof business model.

 

The company sells groceries, household essentials and other goods that consumers will continue to buy in any set of economic conditions.

 

Because it focuses on providing the best possible prices to its members, Costco will likely do well during a downturn as shoppers search for ways to do more with their budgets.

Costco’s membership model also gives it an advantage during tough times. Customers who have signed up with Costco are far more likely to shop there than begin buying from its competitors. As a result, the company has a very stable base of revenue built on a highly engaged clientele.

 

Between these two factors and the advantage of sheer scale, Costco can be expected to ride out a potential recession with relative ease. In fact, the company could expand its customer base as shoppers look for lower-priced sources of groceries and essentials.

 

Telecommunications company Verizon (NYSE: VZ) is similar to Costco in that it provides an essential service that customers will continue to pay for during bad economic times. Even if a recession were to cause people to cut back on discretionary spending, Verizon customers would be unlikely to abandon their plans.

 

As telecom companies continue the rollout of the nationwide 5G network, their role in day-to-day life will only increase. Devices powered by high-speed internet connectivity may soon feature prominently in almost every home and office. After that point, telecommunications companies like Verizon will likely become even more recession-proof than they currently are.

Verizon also has the advantage of offering a relatively high dividend yield. As of the time of this writing, shares of Verizon yield 4.79 percent in dividend payments annually.

 

During a recession, a stable stock with such a high yield can be an extremely useful part of your portfolio. With dividend income, you’ll be less likely to need to sell your shares in the middle of a downturn. Dividends can also bolster your overall returns, even if the price growth of a stock is lackluster.

 

Together, these factors make Verizon extremely appealing if the market plunges. If you’re looking for a stock that will remain stable and produce a reliable stream of income in almost any market environment, Verizon is likely one of the better bets at the moment.

 

As a major provider of basic healthcare and medical needs, CVS (NYSE:CVS) stands out as yet another company that is unlikely to experience a significant slowdown during a recession.

 

Part of the beauty of CVS is its broad diversification. Unlike other healthcare providers, CVS has a hand in basic medical services, prescription sales, over-the-counter medicine sales and general retail. Together, these business lines give CVS an advantage in riding out a potential downturn.

One concern that CVS does present is limited upside as a result of its rally during the recent pandemic. With that said, the stock is likely an excellent vehicle for capital preservation if the market starts to turn sharply lower.

 

Like Verizon, CVS offers a decent dividend yield. While it is lower at only 2.15 percent, the dividend is still large enough to be worth noting. This also helps to somewhat offset the problem of limited upside, since investors will still be able to see additional returns in the form of dividend payouts.

 

Rounding out the list of recession-resistant stocks is oil giant Exxon (NYSE:XOM). Energy stocks are historically good bets during times of turmoil.

 

Baseline demand for oil generally supports firms like Exxon, even when other industries are struggling. Among the oil companies, Exxon tends to be the best investment when the economy is going through difficult times.

Exxon’s dividend is nearly on par with Verizon’s. At the time of this writing, the stock yielded 4.59 percent. Exxon is also one of the so-called dividend aristocrats. This rarified list of stocks consists of companies that are part of the S&P 500 and have raised their dividends for at least 25 years. As a result, Exxon is perhaps the best dividend stock for investors concerned about a coming economic downturn.

 

Exxon has also shown itself capable of riding out even very deep recessions. In the aftermath of the 2008 financial crisis, Exxon delivered better performance than other blue-chip stocks purchased mainly for their dividend yields.

 

The company also increased its earnings in two of the three years spanning 2008-2010. While each recession is unique, this at least demonstrates that Exxon can keep itself afloat during times of significant economic turmoil.

 

As you can see, there are some common themes that connect these stocks. To begin with, they’re all large, established companies that will continue to generate revenue when consumers begin to pare back spending. High, stable dividend yields are also helpful when picking recession-resistant stocks since dividends can offset lack of growth in share prices.

 

By choosing your stocks carefully, you can prevent large losses during market downturns. While you may not see huge returns during hard economic times, it’s possible to preserve your capital for the future. You can also consider diversifying your portfolio with bonds and cash to ensure some of your wealth is invested in safer, less volatile instruments.

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