We may not know exactly when the next market crash will come, but we do know that at some point it will be certain. Investing is accepting the market cycles, but preparing your portfolio for downturn can be an important part of protecting your profits. If your allotment is too risky, you may want to consider adding stocks that are doing well during recessions and market downturns. It will not usually give you spectacular growth during the bull markets, but it will probably not be nearly as hard as the high kites.
Stability with utilities
Utilities are one of the classic defense sectors that are known to perform well during recessions. If people spend money on housing, items with big tickets, vacations and dining, they are less likely to turn off the electricity, water or heating in their homes. As a result, utilities have relatively stable businesses that tend to have slow growth and limited interruptions over economic cycles.
Eversource Energy (NYSE: ES) provides natural gas, electricity and water utility services to 4.3 million customers in Connecticut, Massachusetts and New Hampshire. The stock’s forward P / E ratio of 21.9 and current value-to-EBITDA of 14.1 are low enough to provide a relative cushion in the current market should the valuations fall in a market crash. Eversource also pays a dividend yield of 2% to deliver returns while getting a downturn. Interested investors will also like the fact that Eversource carries relatively low debt under utilities, with a debt ratio of only 1.17 and an interest coverage ratio of 3.88.
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Consumer staples
In difficult times, consumers still buy groceries, household items and home care goods. Businesses that own popular brands for consumer products are often less volatile during recessions and market crashes. It will never be good growth sources, but stable.
Procter & Gamble (NYSE: PG) offers consumer packaged goods in the home care, cleaning, beauty, care and personal care categories. The company’s portfolio includes numerous well-known brands, including Bounty, Crest, Dawn, Downy, Febreeze, Gain, Gillette, Head & Shoulders, Oral-B, Olay, Pampers, Pantene, Tide and Vicks. A broad portfolio of basic goods sold in 70 countries will hold up well in any recession, so the principles of Procter & Gamble will remain steady.
These are not the type of stocks that will attract rising valuation folds, so there is less room to fall if the market collapses. P&G trades at a modest forward P / E ratio of 22.9 and an EV / EBITDA of 16.2, so that the share prices are anchored by the company’s profits. The stock also pays a healthy 2.5% dividend yield at a sustainable payout ratio of 59%. This is a good return for the market tanks.
Discount stores experience more demand during recessions
Consumers become more selective during income uncertainty. Total retail spending usually declines during recessions, and budget-conscious households start buying. Retailers who can supply basic goods at an attractive value are experiencing an increasing demand as people are replacing more expensive items.
Dollarboom (NASDAQ: DLTR) operates more than $ 15,000 stores in 48 U.S. states and Canada. While the S&P 500 fell by more than 40% from 2007 to early 2009, Dollar Tree shares were actually about where they started. General merchandise of basic goods at the lowest price point offers clear value to consumers. If the next market crash is caused by poor economic conditions in the US, Dollar Tree’s financial performance is likely to remain stable.
Dollar Tree shares are trading at a 17.2 P / E forecast and EV / EBITDA of 16. Investors who want to limit the risk in their equity portfolios are likely to increase the stock in this stock, which would limit losses during the next market crash .