3 Unstoppable Stocks I Want to Buy if a Stock Market Crash Occurs

For more than 17 months, the benchmark S&P 500 (SNPINDEX:^GSPC) has been unstoppable. Since bottoming out on March 23, 2020, the widely followed index has more than doubled in value. It marks the strongest bounce-back rally from a bear-market bottom in the index’s storied history.

But whether this rally can last is an entirely different story. If we look to history as a guide, it would suggest that there’s a growing chance of a double-digit percentage correction or crash on the horizon.

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History may not be the market’s friend in the near term

For example, consider how the S&P 500 has behaved in each of the previous bounce-back rallies from bear market bottoms. In each of the eight previous bear markets (not counting the coronavirus crash), there were either one or two declines of at least 10% within the three years after finding a bottom. What this tells us is that rebounding from uncertainty is a process that often takes time. We’re now 17.5 months into our rebound and have yet to see a double-digit decline in the S&P 500.

Crashes and corrections also tend to be really common. Data from market analytics company Yardeni Research shows there have been 38 double-digit percentage declines in the S&P 500 over the past 71 years. That’s an average drop of 10% (or more) every 1.87 years. Even though the market doesn’t adhere to averages, this does paint a pretty clear picture of how common significant drops can be.

More concerning evidence can be found by examining margin debt — i.e., the amount of money borrowed by investors to buy or short-sell securities. Since the century began, there have been only three instances where margin debt rose 60% or more in a given year. It occurred right before the dot-com bubble burst, right before the Great Recession, and over the past couple of months. If short-term price movements were to work against investors and margin calls are triggered, it could accelerate a move lower in the market.

Lastly, history suggests that extended valuations are worrisome. Last week, the S&P 500’s Shiller price-to-earnings (P/E) ratio closed above 39, which is nearly a two-decade high. The Shiller P/E takes into account inflation-adjusted earnings over the past 10 years. In each of the previous four instances where the Shiller P/E topped and held 30, the S&P 500 subsequently declined by at least 20%.

While none of these points guarantees a crash or steep correction, they do imply a growing likelihood of a significant pullback.

Image source: Getty Images.

Every single crash or correction is a buying opportunity

On the other hand, every single crash or correction throughout history has proven to be a buying opportunity. Each of the 38 aforementioned double-digit declines in the S&P 500 since 1950 has been erased by a bull market rally. As long as your investment timeline is measured in years, crashes and corrections are the perfect time to buy unstoppable stocks…