Use history to find the safe stocks to buy during a stock market crash and protect your money!
Hey Bow Tie Nation, Joseph Hogue here with the stocks that are going to save you from the 2022 stock market crash! The S&P 500 is now down 8% for the year with one-in-five stocks down more than 20% just this year!
But history can help you avoid the worst of a stock crash and even make money. The market plunged 55% from October 2007 to the low on March 9th 2009 but 236 stocks actually beat the index and eight produced positive returns. We also saw 183 ETFs beat the market with 58 of those producing a positive return through the crash!
In this video, I’ll dig into research you won’t see anywhere else to show you the sectors, ETFs and stocks to buy. I’ll highlight the stocks and funds that actually made money in the last stock market crash and show you which I’m buying!
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I want to thank Hoda, the CEO over at Stockcard for getting me the data on this one. I’ll leave a link to Stockcard below. Click through and then go to Portfolios in the top menu, you’ll find the Bow Tie Nation portfolio in this Stock Picks section. It’s free to follow and you’ll get email notifications whenever I buy or sell from the portfolio.
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Which Stocks are Falling in the 2022 Stock Market Crash?
I want to start by looking at where the most pain has been in this year’s stock crash, give you a feel for what I’m watching. Here we are on sectorspdr.com, on the sector tracker tool, and looking at 2022 year to date returns for each of the 11 stock sectors.
2022 Stock Market Crash
And you can see it’s in Technology, Communication Services which is all of your internet and social media companies, and Consumer Discretionary stocks that have been hit the hardest. That’s no surprise as the stocks in these tend to be riskier, growth type of stocks and fall faster in a crash.
It’s here in those three sectors that I would actually start to look to pick up some great deals later in the year or early next, in some of these long-term growth stocks. Investors love buying into those growth and tech stocks as the share prices climb but forget, when prices start falling that can be your best time to get those long-term investments at a discount.
But we could still be in the early innings of the selloff so here we want to focus on safety and besides Energy stocks which have seen a massive run on oil prices this year, it’s really the two traditional safety sectors of Utilities and Consumer Staples doing well. Again, not really a surprise though. The companies in these sectors sell things you have to buy like electricity and food so their cash flows are going to be strong even in a recession.
Safe Stock Sectors in Past Stock Market Crashes
But I wanted to go deeper into the research for this one, not just rely on the conventional wisdom for which stocks or sectors tend to hold up in a market crash. I wanted to actually look at returns in the 2008 crash to find the stocks and funds that not only protected your money but helped grow it!
I reached out to Hoda to run me a search on all stocks and ETFs from the peak on the S&P 500 in October 2007 to the absolute bottom, March 9th 2009. And what we found went way beyond the same old investing rules for safety.
I’ll start with the sectors here to give you that big picture but next I’ll show you exactly which ETFs and stocks beat the market.
And we see that stocks in the Consumer Staples, Healthcare and Utilities sectors all held up well, outperforming the drop of 55% across the market with Staples only falling about half that amount so really living up to its safety status. Stocks in the Consumer Staples sector lost 28% on average with Utilities losing just over 40%.
It’s interesting that stocks in the Consumer Staples sector have been hit so hard on inflation over the last year, as a lot of the food processors like General Mills and Conagra Brands, face higher costs. But I think most of that was in the supply chain issues which is now working its way through and could be less of a factor for the rest of this year. So besides this idea of safety from a market crash, stocks in this sector could see better earnings growth and an upside on share prices.
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Safe ETFs in a Stock Market Crash
Now I want to look into how specific ETFs did during the crash, where might we be able to protect ourselves with broad, diversified funds.
And it’s no surprise here the ultrashort funds did so well, some posting returns in the hundred and two-hundred percent range. These funds are set up to leverage the opposite of the return in the indexes or sectors, typically shorting futures contracts on the indexes and often using leverage of two- or three-times. That means if the Nasdaq index falls by 20% then the short fund could rally by forty- or sixty-percent higher.
For something like this, you might look at the ProShares UltraPro Short QQQ, ticker SQQQ, which is going to take that leveraged short position against the tech-heavy Nasdaq. These aren’t so much long-term investments because the fees are really high but they can be used to hedge your risk in other stocks, benefiting in the short-term if the market falls.
I’m not sure I want to short the market but just want to find some investments that can still do well even if the market keeps falling. So we’ll keep scrolling here and we see that the gold and bond funds also did well which is typical in a stock market crash. You’ve got ETFs like the SPDR Gold Shares, ticker GLD, which are backed by gold deposits, and the iShares 20-year Treasury ETF, ticker TLT, which benefits because as interest rates fall in a recession then bond prices go up.
The problem here is that gold still seems a little expensive and interest rates are likely to go up instead of down over the next year. Even a 40-year record on inflation wasn’t enough to break the price of gold out of its range. It took the threat of a world war and a market crash to send gold up to $2,000 an ounce so I wonder how much value is left even if things get worse.
For bonds, I do think you can find some safety in shorter-term bonds like the Vanguard Short-term Bond Fund, ticker BSV. It pays a 1.4% dividend and short-term bonds don’t fall as much when interest rates rise so you won’t lose as much as some other bond funds.
The exception to this in bonds is the Series I Savings Bond, which includes an inflation adjustment so the interest you earn actually goes up with higher prices. This is one of the best opportunities for investors right now, the protection of a bond and interest of 9% and higher. Watch this video for a complete guide on I Bonds!
Safe Stocks to Buy During a Stock Market Crash
Now for the good stuff. There were over 200 stocks that beat the market during the last big crash but only eight posted positive returns. We’ll start by switching to stocks here and then sort by return.
Now I wouldn’t say rush out to dump all your money into Netflix but there are some real lessons looking at the stocks that outperformed the market.
We see the three major auto parts retailers with AutoZone, Advance Auto Parts and O’Reilly Automotive with AutoZone posting a 22% gain and remember this is while the S&P 500 index was falling 55% so even that small 6% loss on O’Reilly would have been really nice.
Some of this may have been from the Cash for Clunkers program which started later in 2009 but the automotive stocks started rebounding earlier but the industry was also doing really well before that…just on the idea that if people aren’t buying new cars in a recession they’re going to need the parts to fix up the old ones.
And we do see AutoZone, ticker AZO, started outperforming the market well before the Cash for Clunkers program. Here’s shares of AZO in blue and the S&P 500 in red, really starting to diverge in 2008 so there does seem to be some safety here in the auto stocks.
I think either of those three; AutoZone, O’Reilly or Advance Auto Parts will help protect your portfolio. This is a year-to-date chart and all three are outperforming the 10% loss on the S&P 500 though Advance is just barely with a loss of nine percent. The other two though, Autozone and O’Reilly are both posting positive returns this year. Advance Auto Parts, ticker AAP, is the cheaper valuation though I think Autozone has a stronger competitive advantage in business.
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You also see real strength in the discount stores, Ross Stores and Dollar Tree, along with low-price leader Walmart. This is on the idea that as people face a recession and maybe a weakening labor market, they start thinking harder about prices and saving.
Of the four; Ross Stores, ticker ROST, Dollar Tree, ticker DLTR, Walmart, ticker WMT and Dollar General, ticker DG; only Ross Stores is underperforming the S&P 500 so far this year. Ross Stores is a more consumer discretionary retailer rather than the groceries and staples sold at the other three. I like Ross though. Of the three, it’s the only one selling at a discount to its five-year price-to-sales ratio, a discount of 16% in fact. Walmart is trading 23% above its five-year average while the dollar stores are even more expensive at 52% premium for Dollar Tree and 29% premium for Dollar General.
The drugmakers also did well in the last stock market crash with Gilead Sciences, Abbot Labs and if you scroll down, Amgen. If it was just one or two biotech or pharma companies, I might chalk this up to breakthroughs at a specific company but this is broad strength around drugmakers and I think somewhere else you can look for safety.
Even though it’s come down recently, I like AbbVie, ticker ABBV, for that safety and long-term growth along with the 3.6% dividend yield. Analysts have an average target of $162 per share, about 5% above the current price.
Scrolling further still and you get a sense of that safety in Consumer Staples stocks with other names like General Mills, McCormick and Hormel Foods. All three of these fell during the period but were well above the losses we saw in the overall market and their dividend yields helped soften some of the impact for investors. In fact, Altria Group, ticker MO, pays a 6.5% dividend yield and is up 15% so far this year, beating the market by 25%!
Don’t Miss the Entire Stock Market Crash Series!