Owning stocks when the market is rising can make for an incredibly exciting time, but not so much when the market is dropping.
Although the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) recently hit a fresh multi-year high, there will soon come a time when a correction occurs.
Or a recession…
Or maybe even a crash.
While those times can be extremely scary for investors (particularly when most of their wealth is tied up in stocks), it is all part in parcel of the market’s cycles.
Make no mistake, it will happen. It is simply a matter of when, and how bad it will be…
While ‘recession-proof’ doesn’t seem like an appropriate term to give any stock – almost every company will be affected in one way or another – there are a number of companies which investors can buy to help stabilise their portfolios.
These are often companies that maintain well diversified operations or sell products or services that are relatively immune to economic downturns.
While I don’t necessarily think either of those companies present as outstanding buys right now, there are a number of other stocks which investors should consider.
Here are four of those companies…
1. Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) – This company is about as close as you’re ever going to get to Warren Buffett’s own Berkshire Hathaway in terms of how its business is run. As a conglomerate, it invests in companies it deems to be reasonably priced and holds onto them for the ultra-long term, letting their values compound over the years. Two of its main holdings include Brickworks Limited (ASX: BKW) and TPG Telecom Limited (ASX: TPM). Its high level of diversification helps to spread the business risks.
2. Crown Resorts Ltd (ASX: CWN) – An economic downturn might make individuals a little reluctant to open their wallets, but generally there are still plenty that are more than willing to try their luck at striking it rich on the casino tables, or spending on other forms of entertainment. Crown is one of Australia’s largest companies and with strong growth prospects both in Australia and abroad, would be an excellent addition to your portfolio today.
3. Cash Converters International Ltd (ASX: CCV) – When the going gets tough, it is common for individuals to attempt to secure short-term loans and pawn their assets for a little extra cash. With a market capitalisation of just $490 million, Cash Converters is already a dominant player in this industry while it also offers a fully franked 3.7% dividend yield. Grossed up, that’s a yield of 5.3%!
4. Northern Star Resources Ltd (ASX: NST) – This is an excellent way for investors to gain exposure to the gold sector. In times of economic distress, gold soars in price as it is seen to be a “safe haven” for investors. This is obviously good for the miners themselves, who can sell their product at a much higher price. The company is expected to grow its earnings and dividend strongly in the coming years, so now might be a good time to pick up your position!
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Each of the companies mentioned above appear to be trading at very reasonable prices, and while I already own Cash Converters and Washington H. Soul Pattinson, Crown and Northern Star are both sitting firmly on my watchlist.
Motley Fool contributor Ryan Newman owns shares in Cash Converters International, Washington H. Soul Pattinson & Berkshire Hathaway (B).
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