3 Cutting-Edge Stocks to Buy If There’s a Stock Market Crash

Folks, I’ve got some good news and some “bad news,” depending on your perspective.

On the bright side, the benchmark S&P 500 (SNPINDEX:^GSPC) has enjoyed a historic bounce-back rally from its March 2020 low. We’re nearly 20 months removed from the bear-market bottom set during the initial stages of the pandemic, and the S&P 500 has more than doubled in value.

The “bad” news is that the potential catalysts for a stock market crash or steep correction are building.

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Is a stock market crash on the horizon?

For example, last week we witnessed the broad-based S&P 500’s Shiller price-to-earnings (P/E) ratio eclipse 40 for only the second time in history. The Shiller P/E examines inflation-adjusted earnings over the last 10 years. Although valuation alone is rarely ever the catalyst for a steep correction or a crash, it is ominous that following the previous four instances where the S&P 500’s Shiller P/E crossed above 30, the index subsequently shed at least 20% of its value.

It’s not just historic valuations that are concerning. Dating back to 1960, there have been eight bear markets, not counting the coronavirus crash. Following each and every one of these eight bear-market bottoms, there were either one or two drops of at least 10% within 36 months. What this tells us is that bouncing back from a bear market is a process that takes time. For the past 20 months, the S&P 500 has made a beeline to the heavens.

There are more tangible concerns as well. Inflation readings from October showed a roughly 31-year high for the pace at which the price for goods and services is climbing. While it’s perfectly normal for inflation to be present in a growing economy, high levels of inflation (6%+) threaten to reduce the purchasing power of consumers and businesses.

There’s also been a large uptick in margin debt in 2021. Margin debt describes the amount of money borrowed with interest to buy or short-sell securities. While we’d expect margin debt outstanding to rise over time, it’s not common for margin debt to climb 60% or more in a single year, as it did earlier this year. The only two times that’s happened previously, dating back to 1995, is right before the dot-com bubble burst and months before the financial crisis took shape.

Stock market crashes are an inevitable part of the investing cycle, and it’s possible one could be brewing.

Image source: Getty Images.

Crashes and steep corrections breed opportunity for the patient

But as I stated earlier, crashes and steep corrections are only bad news based on your perspective. If you’re a short-term trader who’s attempting to time the market, a sudden, steep drop in equities can be quite painful. But if you’re investing in great businesses for many years and allowing your investment thesis to play out over time, crashes and corrections are nothing more than opportunities to buy stocks at a discount.

In fact, one of the smartest moves you can…