Economists, bank CEOs, and analysts are increasingly worried about a recession striking early next year, which could cause stocks to slide even further than they have in 2022. Yet, just as night follows day, corrections are a natural outgrowth of the normal business and investment cycle.
We don’t yet know what will happen, but smart investors realize it’s best to prepare for downturns. For me, that means having cash available to take advantage of the discounts that will exist.
Because I think the stocks I’ve bought are solid businesses with excellent long-term growth potential, any market crash that makes their valuations cheaper will signal a buying opportunity.
With that in mind, if the stock market suddenly plunges further, these are three stocks I own that I will be looking to buy again.
1. Genuine Parts
Aftermarket auto parts retailer Genuine Parts (GPC -1.81%) has a long track record of surviving and thriving in stressful times. Founded in 1928, the owner of the NAPA Auto Parts chain of stores has been through recessions and depressions, world wars, and global pandemics. Because keeping a car in good running condition — especially in times of economic upheaval — is critical for so many people, Genuine Parts is virtually assured of a regular stream of customers.
Of course, it’s not completely immune to recessionary winds, but every significant downturn in its business (and stock price) has been followed by more dramatic reversals that have led to substantial gains. Since 2000, Genuine Parts has returned over 630%, while the S&P 500 has returned less than 170%.
Just as importantly, for nearly 100 years the auto parts retailer has paid a dividend to shareholders and has increased the payout every year since 1948, a 74-year record that easily makes it a Dividend King.
Sysco (SYY -2.00%) might not be a monopoly, but it nevertheless dominates a highly fragmented food distribution industry, commanding a 17% share of this market while rival U.S. Foods has an 11% share.
The company serves approximately 700,000 customer locations in restaurants, hospitals, schools, and government offices while operating 333 distribution facilities worldwide (though over 70% of its sales are in the U.S.).
In contrast, U.S. Foods serves 400,000 customer locations, not insignificant, but Sysco’s cost advantages deriving from its far-flung network allow it to be closer to its customers, which provides it with cost advantages its rivals can’t match.
Sysco emerged from the pandemic a much stronger business than it was prior, adding $2 billion worth of new national sales contracts over the past two years and boasting volumes that exceed 2019 levels.
Sysco is also dividend royalty, having paid and increased its dividend for over 50 years. The shares trade at a reasonable 17 times next year’s earnings.
3. American States Water
Utilities have long held the reputation of being widows-and-orphans stocks because of their stability and ability to provide income even in times of trouble. American States Water (AWR -0.10%) provides clean water and electricity to Southern California, which represents about two-thirds of its revenue; has long-term contracts with the U.S. government to provide water to 11 military bases (for another 25% of revenue); and derives the rest of its revenue from generating electricity.
American States has paid a dividend to its investors for 86 straight years and has increased the payout every year for 68 consecutive years — just the sort of consistency widows, orphans, and really all investors appreciate.
Recent earnings results missed sales and earnings estimates, but that is primarily because it has been waiting for California utility regulators to approve its rate requests for 2022. That means it has been operating on last year’s rates, so that if and when they are approved, they would be retroactive to Jan. 1 and would add $0.10 per share to its earnings. American States missed Wall Street’s profit projections by just a penny per share.
You don’t get the kind of sexy growth that investors might find with a tech stock, but rather a strong, dependable business that has a long history of returning value to shareholders.
Rich Duprey has positions in American States Water, Genuine Parts, and Sysco. The Motley Fool recommends the following options: long January 2023 $50 calls on Sysco and short November 2022 $90 calls on Sysco. The Motley Fool has a disclosure policy.