3 Stocks to Buy Hand Over Fist If a Stock Market Crash Occurs

Whether you realize it or not, Wall Street and investors are enjoying a truly historic run. It took less than 17 months for the benchmark S&P 500 (SNPINDEX:^GSPC) to double in value since bottoming out in March 2020. Additionally, the biggest pullback endured by investors over the past 11 months is just 5%. This has been the strongest bounce-back rally from a bear-market bottom of all time.

Unfortunately, there are also plenty of warning signs that this perfect rally may soon end.

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

To preface the commentary below, we’re never going to know ahead of time precisely when a stock market crash or steep correction will occur, how long it’ll last, or how steep the decline will be. Nevertheless, the data clearly shows that crashes and corrections are a normal part of the investing cycle and the price of admission to one of the greatest wealth creators on the planet.

For instance, the way the S&P 500 has responded following each of the previous bear-market bottoms, dating back to 1960, is telling. We’ve witnessed either one or two declines of at least 10% within 36 months following a bear market trough. We’ve yet to navigate our way through a double-digit percentage decline after the March 2020 bottom (19 months and counting).

Another telltale warning for investors is the valuation of the S&P 500. As of the close of business on Monday, Oct. 25, the S&P 500’s Shiller price-to-earnings (P/E) ratio stood at 38.9, which is well over double its 151-year average (16.9). The bigger concern is that in each of the previous four instances where the S&P 500’s Shiller P/E ratio surpassed 30, the index subsequently lost 20% (or more) of its value.

Even margin debt serves as a focal point of concern. Margin debt describes the amount of money borrowed with interest to purchase or short-sell securities. While it’s not abnormal for margin debt to increase over time, it isn’t normal for margin debt to increase 60% or more in a single year, as it’s done in 2021. The previous two times we’ve watched margin debt climb at least 60% in a year since 1995 were just before the dot-com bubble burst and months before the financial crisis (2007-2009).

Long story short, a crash or correction may well be on the horizon.

Image source: Getty Images.

This stock trio offers surefire opportunity during a crash

However, there are two sides to every story. While stock market crashes and corrections might lead to some temporary red ink in investors’ portfolios, these natural downturns also serve as the perfect opportunity to buy great stocks at bargain prices. If a stock market crash were to occur, investors shouldn’t hesitate to buy the following three stocks hand over fist.

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