Warren Buffett has made a fortune by putting his money to work in the stock market, but it looks like he is now afraid that a crash could be in the cards. The Oracle of Omaha has been going cash-heavy and is pulling out of stocks, indicating that the legendary investor might be bracing for a stock market crash.
But what if I told you that there are three stocks that could help Warren Buffett reap rich returns in case a recession arrives next year and sends the stock market into meltdown mode? AutoZone, Dollar Tree, and Ross Stores are three names that you – and Warren Buffett – should own before the next stock market crash begins. Let’s see why.
Why AutoZone will thrive in a stock market crash
According to the National Bureau of Economic Research, the last recession began in December 2007 and ended in June 2009. During this period, the S&P 500 and the Dow Jones Industrial Average crashed nearly 40 percent.
But AutoZone stood tall amid the stock market crash and gained 46 percent, and that was not surprising given the business the company is into. AutoZone if a 40-year old company that retails aftermarket vehicle parts through a network of more than 6,000 stores in the U.S., Mexico, and Brazil.
When a recession strikes and consumers become stingy, demand for AutoZone’s products and its stock rises. That’s because buying a new car during a recession isn’t a great idea, so vehicle owners start spending money on extending the life of their current vehicles. The aftermarket parts industry gets a nice boost in such a scenario, as evident from AutoZone’s performance during the last recession.
The company’s same-store sales in fiscal 2009 (which ended in August that year) had shot up 4.4 percent over the previous year. For comparison, AutoZone saw tepid same-store sales growth of 0.4 percent in fiscal 2008.
The good news for AutoZone investors is that the company is witnessing favorable business conditions once again, paving the way for a stock market rally. IHS Markit estimates that the average age of cars on U.S. roads has increased to its highest reading of 11.8 years since the tracking began in the early 2000s. On the other hand, sales of new cars are down in the U.S., as evident from a 1.6 percent decline in light vehicle sales in the first nine months of the year.
So as consumers try to keep their cars for a longer period of time and don’t upgrade to a new one fearing a recession, AutoZone could win big and sustain the recent uptick in its financial performance.
Stingy consumers mean big business for these two retailers
Clothes and food are two things that are essential to our existence. Dollar Tree and Ross Stores fulfill these two basic needs at a lower cost, which is why they make for solid stock market bets during a crash.
Dollar Tree is a discount store offering a large selection of items at a price of $1. So it wasn’t surprising to see that its sales in fiscal 2008 had increased 9.5 percent on the back of a 4.1 percent increase in comparable-store sales. For comparison, Dollar Tree had reported a 2.7 percent increase in comparable-store sales in the previous fiscal year, indicating that the recession gave its sales a shot in the arm.
Similarly, demand for Ross Stores’ products was also up during the last recession. In fiscal 2008, the company’s revenue increased 8.6 percent over 2007 levels, while same-store sale growth doubled year over year to 2 percent. Again, this is not surprising as Ross Stores is known for selling clothes at cut prices with the tag line “Dress for Less,” thanks to the company’s no-frills approach.
Ross Stores doesn’t have fancy displays or mannequins and uses its purchasing power to get clothes on the cheap. The good part is that the company’s financial performance has remained strong this year, and it could get better as the chances of a recession and stock market crash increase.
In the end, it can be said that Warren Buffett – and you – can still make a lot of money in the stock market with the right recession-proof picks that thrive during a crash.
Last modified: September 23, 2020 1:10 PM