Over the past decade, investors have been treated to a bull market of epic proportions. So far this year, the Dow Jones is up more than 20% after reaching record highs at the start of November. But as the old adage goes, what goes up must come down, and some say a bear market could make an appearance as early as next year.
But instead of taking money off the table, analysts agree a balanced portfolio that can ride out the storm is the best strategy. Timing a market crash is incredibly difficult—those that listened to market crash warnings earlier this year have watched the Dow soar to record highs this November without them. Instead, investors can buy financially sound companies that are likely to perform in a downturn.
The first place to look in today’s market is the healthcare space, which has largely under-performed the Dow and S&P 500 all year. Not only does that mean valuations are more manageable, but the industry has a lot of growth potential as the population ages.
Amgen is one of the best quality healthcare stocks on the market right now. A big reason for that is the firm’s strong balance sheet and reliable dividend. In Q3 the firm boasted $20.9 billion in cash and investments and total debt of $29 billion. Plus, AMGN’s upcoming pipeline of drugs looks promising.
Morningstar pointed to the firm’s Repatha cholesterol drug and Aimovig migraine drug as potential growth catalysts for AMGN stock. Plus, AMGN’s partnership with BeiGene (NASDAQ:BGNE) adds a layer of potential growth in the Chinese market as well.
As the largest provider of Medicare Advantage healthcare plans in the country, UNH makes for a great pick in the healthcare space. As Baby Boomers reach retirement age, the number of people opting for Medicare Advantage plans is expected to rise over 40% by 2027.
UnitedHealth is also one of the best insurers to hold through a bumpy period because it has always been conservatively run, which has left UNH with more flexibility in leaner times. UNH offers a 1.56% dividend yield, but with a payout ratio of 28%, that figure has plenty of room to rise in the years ahead.
CVS offers investors a unique play in the healthcare space as the firm is essentially three businesses rolled into one— a pharmacy benefits manager, a retail pharmacy, and an insurer. The firm is still completing its transition into a one-stop shop for everything healthcare related. CVS’ in-store clinics should continue to gain momentum as the firm continues to build out its offerings. CVS is eventually planning to offer around 80% of the services that a general practitioner would.
CVS offers investors who can wait out the turbulence a 2.66% dividend yield and trades at just 10 times its forward earnings, making it a relatively cheap buy.
Another way to invest while the Dow is up is to buy quality, financially sounds firms. While downturns can be a struggle for many businesses, they’re an opportunity for others. Companies with low debt and cash-heavy balance sheets are able to acquire struggling competitors and invest in future growth when times are tough.
It’s impossible to talk about financial strength without mentioning Apple, as the tech giant is known for its impressive cash coffer. If the market sours, AAPL would have more than enough money to buy up its lesser-prepared peers.
The cash also acts as a safety net for investors. AAPL management has been extremely shareholder friendly, rewarding its investors with buybacks and dividend payments— both of which will likely continue should a bear market descend on the Dow.
MCD stock is what many refer to as a ‘cash cow.’ That’s because the fast food chain produces consistent, and abundant, free cash flow every year. That has allowed MCD to increase its annual dividend every year for the past four decades and carry out stock repurchase plans over the past few years.
Along with rewarding shareholders, MCD is spending on future growth as well. The company is building out a delivery option and recently invested big in AI. McDonalds is hoping that its AI bets will improve efficiency at its self-order kiosks and increase per-customer spend via smart-menus at its drive-throughs.
Another cash-rich business that will get investors through a downturn is Canadian telecom BCE. The firm is the largest of its kind in Canada, and its strong position as a wireless provider makes this a relatively safe long-term play.
BCE has delivered consistent revenue growth over the past few years and more of the same is expected through 2019. In the third quarter, BCE saw its free cash flow rise 17.3%. Management is expecting free cash flow growth between 7% and 12% for the full year. The firm pays its dividends using between 65% and 75% of its free cash flow, so investors can rest easy that BCE’s 5% dividend yield is only going to continue rising.
As of this writing, the author was long AAPL
Last modified: September 23, 2020 1:19 PM