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If you're worried about an imminent stock market crash -- or one happening this year or next, you might also be wondering which kinds of stocks are best to hold. That's a good question, because some kinds of stocks do better or worse during a market pullback. If it's tied to a recession, for example, many will put off buying a new car or refrigerator -- but lots of other things will go on.
To bolster your portfolio, consider adding some industrial stocks to it, and, ideally, ones that seem undervalued -- which can offer a margin of safety in the event of a market crash or correction. Undervalued stocks tend to do better in market pullbacks than high-flying growth stocks.
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Waste Management (NYSE: WM) has one of the most defensive businesses around -- collecting trash and recycling a lot of it, too. Whether the economy is booming or ailing, households and businesses alike will need trash and recycling collected. Better still, the company has expanded in an attractive direction by buying Stericycle, a major collector of medical waste.
In its second quarter, Waste Management, which also goes by "WM," reported revenue up 4% year over year to $6.7 billion and cash flow increasing by nearly 12%. Its self-description is impressive: "In North America, WM has the largest disposal network and collection fleet, is the largest recycler and is a leader in beneficial use of landfill gas, with a growing network of renewable natural gas plants and the most landfill gas-to-electricity plants..."
Shares of WM have averaged annual gains of about 14% over the past 10 and 15 years, but they're down about 3% over the past year. The fact that the stock is taking a breather means shares are more attractively priced than they often are. They're not bargain-priced, but they are at least reasonably valued at recent levels, with a forward-looking price-to-earnings (P/E) ratio of 23, below the five-year average of 27. Oh, and WM is also a dividend payer, with a recent dividend yield of 1.8%.
Lockheed Martin (NYSE: LMT), as you likely know, is a major defense company, with a recent market value of $117 billion. Like WM, it's a dividend payer, recently yielding 2.7%. Its payout has grown over time, too, with its recent total annual dividend amount of $13.65 per share up from $11.40 in 2022 and $9.00 in 2019.
Governments are not eager to cut back on military spending when the economy slows, and even more promising for Lockheed Martin is the fact that there are plenty of geopolitical conflicts going on right now. That's likely to boost defense spending.
Meanwhile, the company is growing, with revenue up 11% year over year to $20 billion in the second quarter, and a record backlog of $230 billion. Management also pointed out how nimble the big company can be: "We continue to innovate at the speed our customers' missions demand, taking our Sanctum counter-drone system from concept to successful live fire testing in just 45 days by combining a battle manager, radar, launcher, and combat-proven missile into one engagement chain."
Lockheed Martin's stock also seems undervalued, with a recent forward-looking price-to-earnings (P/E) ratio of 15 below the five-year average of 17.
Stanley Black & Decker (NYSE: SWK) has a lot to offer: It's a dividend-paying stock with a recent yield of 3.8%, and that payout has grown from a total annual payout of $3.32 recently, from $2.70 in 2019 and $2.26 in 2016. Its valuation is looking attractive, too -- with a recent forward-looking price-to-earnings (P/E) ratio of 14, well below the five-year average of 16.
The company has been facing some challenges, such as inflation causing some consumers to cut back on spending, but it has also been strengthening its financial position in part by paying down debt. It has also been buying back shares and cutting costs effectively, reporting having "generated approximately $2.1 billion of pre-tax run-rate savings."
Anyone investing in the company now will be paid to wait for better times, which can come whenever interest rates fall, as that can spur homebuilding, homebuying, and home remodeling.
Give any or all of these companies some consideration for your long-term portfolio. They could help you sleep better at night, especially in a market pullback.
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Selena Maranjian has positions in WM. The Motley Fool has positions in and recommends Lockheed Martin. The Motley Fool recommends WM. The Motley Fool has a disclosure policy.
If a Stock Market Crash Is Coming, History Says These 3 Industrial Stocks Are the Best Move was originally published by The Motley Fool
