Last Monday, July 19, investors experienced a mini market correction when the Dow Jones Industrial Average tanked over 700 points (2.1%), the S&P 500 dropped 1.6%, and the Nasdaq Composite sank 1.1%. By week-end, all the indexes had gained back most of what they lost, but it was possible that anyone who had money in the market thought that this might be the beginning of the big drop…
Let’s face it: There’s going to be a market correction some place, some time. That’s just part of the normal cycle of the stock market. Since nobody knows when that will happen, it’s best to always be prepared for it. Below, three Motley Fool contributors discuss where to put your hard-earned money so you can be prepared for that inevitable day.
A King among market survivors
Eric Volkman: One type of company most likely to emerge from a market crash relatively intact is a purveyor of essential goods.
No matter the state of the economy, people are always going to need toothpaste and adhesive bandages. That’s why my pick would be a company that not only thrives on selling such goods, but has also survived a great many economic peaks and valleys over its long existence: Johnson & Johnson (NYSE:JNJ).
The company is unique among blue chip stocks because it’s a pharmaceutical company that also straddles the consumer goods sector. Its consumer health unit — the one that houses medicine cabinet staples such as Band-Aids and Listerine — is responsible for around 16% of its revenue.
The market for such essentials is quite solid and helps smooth out the results of the more up-and-down, larger pharmaceutical segment. It also keeps the money flowing in, and is a key reason the company is such a cash-generating monster year in and year out.
Speaking of pharmaceuticals, Johnson & Johnson continues to be a top player in that segment.
Its single-dose coronavirus vaccine is one of a mere three authorized by the U.S. Food and Drug Administration, and the only one-and-done solution of the trio. While recent research from both the company and outside entities conflict as to the vaccine’s effectiveness against the delta variant currently on the rise, the company’s vaccine remains a potent weapon against the spread of the coronavirus.
And the company doesn’t ignore the business opportunities presented to it. A standout business for Johnson & Johnson lately has been medical devices, the sales of which leaped by 63% in the company’s second quarter to hit nearly $7 billion. Medical devices now comprise nearly a third of the company’s total revenue.
Another compelling reason to take shelter in Johnson & Johnson before and during a market crash is its rock-solid dividend, which currently yields a respectable 2.5%.
Johnson & Johnson is a Dividend King, one of the handful of S&P 500 stocks that has raised its payout at least once annually for a minimum of 50 years running. Consider how hard it is to run a successful business even for a few years in a row — one successful enough to pay a dividend for more than half a century is a sturdy and very reliable overachiever, and should provide plenty of shelter from a market collapse.
A cash-generation machine, even during challenging times
Barbara Eisner Bayer: When I think about surviving a market crash, I look for a company with two attributes: the ability to survive relatively unscathed, and the ability to continue paying a dividend so that my stocks generate cash no matter what’s happening on Wall Street. Innovative Industrial Properties (NYSE:IIPR) has both characteristics.
First off, the company is a real estate investment trust (REIT), which is required to pay out at least 90% of its taxable income to investors in the form of a dividend. And second, it’s in a relatively recession-proof industry — marijuana. During the coronavirus pandemic in 2020, legal pot sales reached a record $17.5 billion, which was a 46% increase from the prior year. Apparently, when the going gets tough, the tough get high.
IIP doesn’t sell marijuana — rather, it owns properties that cultivate and process pot, and then leases them out for long periods of time. As of June, the company owned 72 properties spread across…
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