There is never a dearth of confident predictions about what to come for Wall Street, but no one ever knows for sure when the next stock market crash will strike. The indices have skyrocketed so far in 2021, mainly on the back of soaring consumer and business spending. These trends could change quickly, however, as they have done on several occasions since the pandemic struck in early 2020.
But if we can’t be sure of their timing, we can be sure that slowdowns will occur at some point. They are inevitable. Having said that, getting in and out of stocks is a bad strategy to hedge against this risk.
Investors trying to synchronize the market are likely to miss at least part of the rebound that follows a dip, even if they have correctly guessed the timing of the downturn. You are better off buying and owning high quality stocks that offer solid returns even in times of economic and market recession.
With that goal in mind, let’s see why you might want to add Walmart (NYSE: WMT) and Mcdonalds (NYSE: MCD) to your wallet today.
Walmart’s stock price hardly fell during the pandemic market collapse in March and April 2020. Its shares even rose slightly as the S&P 500 plunged more than 20%.
Of course, this outperformance can be attributed to the unique sales environment of the period, characterized by the temporary closure of all non-essential retailers. But investors have also found solace in Walmart’s dominance in the consumer staples industry and its strong financial record.
The bullish investing thesis has only improved since then. Walmart added $ 40 billion to its business footprint in 2020, gaining millions of new customers through its digital and in-store channels.
Management increased the stock dividend for the 48th year in a row, and the chain’s surging cash flow allowed it to make aggressive bets in high-yielding areas like store remodeling, e-commerce and retailing. data monetization. But in 2021, the stock didn’t participate at all in the broad market’s 20% rise at all, making it a good candidate for outsized returns in the event of a downturn.
McDonald’s shares faded along with the wider market during the pandemic crash, which makes sense given the fast food titan has had to shut down most of its dining rooms amid social distancing safety measures were implemented. Yet even a global operational hiatus did little to shake Mickey D’s finances. His operating margin briefly fell to around 37% of sales, well above those of his industry peers. This is in part because the chain derives a large portion of its revenue from stable sources like royalties, rent, and franchise fees.
Over the past year, the company has cut costs so its franchisees can enjoy even higher cash returns. And McDonald’s has diversified its sales base by supplementing its dominant drive-thru channel with a strong push into door-to-door delivery.
Those assets, along with a dividend growing for 40 consecutive years, should help the fast food titan’s stocks weather the next market downturn, especially given its relative underperformance so far in 2021.
Stock market declines are relatively frequent and large-scale crashes do occur from time to time. While there is no foolproof way to predict the timing, scale and severity of the next crisis, investors can reduce the risk it will pose to their holdings by owning stocks of high quality companies. with stable earnings and rising dividend payouts.
Wall Street has paid less attention to many of these stocks lately, focusing instead on companies with more vibrant growth opportunities in areas such as cloud computing and e-commerce. But market downturns tend to distract investors from perennial winners like McDonald’s and Walmart.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.