Key Points
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Numerous risks could bring about a stock market correction.
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Rather than bailing out of stocks, a shift toward more defensive stalwarts could be a smart move.
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Investors are on edge. It seems that every day there’s a new risk that threatens to spark a stock market sell-off. Geopolitical turmoil — including conflict in Ukraine and the Middle East — is upending energy markets and igniting fears of prolonged war.
Signs of overspending on artificial intelligence (AI) infrastructure, mounting debt levels among major technology providers, and intensifying competition from foreign rivals have many investors questioning whether the U.S. AI boom is slowing. At the same time, stubbornly high inflation and rising interest rates are heaping further pressure on the U.S. economy.
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This worrisome combination of threats could easily lead to a sudden downturn in stock prices.
Some would say we’re due for a stock market correction. Bear markets — defined as a 20% or more decline in a major stock index such as the S&P 500 (SNPINDEX: ^GSPC) — typically occur every 3.5 to five years. The current bull market turned four years old in October.
Should investors sell their stocks now?
Although history suggests it’s only a matter of time before the next crash, selling now could prove to be a losing strategy. It’s extremely difficult to predict exactly when a bear market will begin — and even harder to foresee when it will end.
So, the best strategy is often to stay invested in stocks, so that you’re positioned to profit from the bull market that has historically always followed.
But it could be smart to pare back risk by investing in companies with defensive business models that can better withstand challenging economic conditions.
In this regard, here are three stalwart stocks that could help you safeguard your wealth.
Safe stock to buy No. 1: Walmart
Difficult times drive people to search for bargains. Walmart (NASDAQ: WMT) has long been where they’re found. Known for its “everyday low prices,” the discount retail leader is set to win more business from value-seeking shoppers.
With nearly 11,000 stores, 280 million customers, and a staggering $735 billion in trailing-12-month revenue, Walmart possesses scale advantages over its smaller competitors. The retail giant’s purchasing power allows it to secure the best deals from its legion of suppliers, and it passes on many of these savings to its customers.
Walmart’s financial strength also enables it to invest in AI, automation, and other advanced technologies, which are making its massive fulfillment network more efficient. And as its profits rise, the discount dynamo and Dividend King (a company that has raised its dividend payout for 50 years or more) should have little trouble extending its 53-year streak of annual dividend increases.
Safe stock to buy No. 2: WM
Through both booms and busts, people continue to produce garbage. That provides WM (NYSE: WM) (formerly known as Waste Management) with one of the most dependable revenue streams available in the market today.
The aptly named waste disposal specialist has an unmatched ability to turn trash into cash. WM’s operations span collection, transfer, recycling, and landfill services.
Strict regulations and homeowner resistance make it difficult for would-be competitors to build competing waste facilities. These barriers to entry help the garbage king defend its profits and reduce risk for investors.
WM, in turn, is one of the more dependable dividend stocks. The company has raised its dividend for 23 straight years.
Safe stock to buy No. 3: Berkshire Hathaway
Legendary investor Warren Buffett built Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) to not just survive during market downturns but thrive.
Berkshire’s wide-ranging collection of businesses spans insurance, railroads, homebuilding, paint, and truck stops. GEICO, BNSF Railway, Clayton Homes, Benjamin Moore, and Pilot Travel Centers are just some of the conglomerate’s many holdings. In all, these subsidiaries generated $13 billion in operating profits in the second quarter alone.
Berkshire’s diverse revenue streams enable it to continue cranking out cash even as the economy slows. Moreover, bear markets provide Berkshire with more opportunities to invest its enormous cash reserves — over $365 billion as of the end of June — in bargain-priced stocks and other high-potential assets.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Walmart. The Motley Fool recommends WM. The Motley Fool has a disclosure policy.
