Markets

3 Stocks to Buy Ahead of the Next Market Crash

The stock market is sharply higher than its March lows, but has started to pull back again recently. Since peaking in early September, the S&P 500 has lost nearly 5% of its value. The Dow Jones Industrial Average and Nasdaq Composite indices are significantly lower as well.

In short, another market crash hasn't arrived. Not yet, anyway. If another full-blown stock market crash comes, there will likely be plenty of stocks that will take a major hit, but these three should hold up quite well.

Stormy skies with yellow sign reading "Economic Uncertainty Ahead."

Image source: Getty Images.

An excellent long-term play on communication

Wireless communication has been a major growth trend over the last couple of decades, but it could be just getting started. Not only is the wide-scale rollout of 5G technology coming, but the number of internet-connected devices is also growing exponentially. Think about it this way: If someone told you a decade ago that your doorbell, vacuum cleaner, slow cooker, refrigerator, and thermostat would all be wirelessly connected to the internet, you probably would've been skeptical.

American Tower (NYSE: AMT) is a great way to play the long-tailed (and recession-resistant) trend. The largest real estate investment trust in the world, American Tower owns more than 180,000 communications towers (also commonly called cell towers) all over the world. It leases the space at the tops of these towers to some of the largest telecommunications companies in the world. There's still tons of room to grow, especially in emerging markets. The gradual rollout of 5G could be a major tailwind for American Tower over the next decade or so whether the stock market crashes or not.

The work-from-home economy is a major tailwind for data centers

Once the dust settled from the initial coronavirus crash, I worked up the courage to check how my stock portfolio held up. As of April 1, there was one stock in my portfolio that was not just back to even, but actually higher for the year: data center REIT Digital Realty Trust (NYSE: DLR).

Think of data centers as the physical "homes" of the internet. When you save a document to the cloud, upload pictures to your social media, or stream video content, all of those files need to be physically stored somewhere. That's where data centers come in. A data center is a facility designed to house servers and networking equipment in a secure and reliable environment.

The same trends that are likely to be tailwinds for American Tower are also likely to keep Digital Realty's income rising no matter what the stock market or U.S. economy is doing. As the volume of data flowing around the world keeps growing, it will create a growing need for these properties. As one of the industry leaders, Digital Realty is in a great position to take advantage.

Still a great long-term stock to buy

Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) took a major hit during the pandemic, with its stock down by nearly 30% for the year at the low point. And unlike the other two stocks on the list, it didn't snap back quickly. In fact, Berkshire remained down more than 20% for the year until well into August.

While there were several reasons for the decline, one major headwind was that Berkshire went into the pandemic sitting on a mountain of cash ($137 billion at the start of the year), and didn't take advantage at all during the market crash. In fact, Berkshire was a net seller of stock during the first half of the year, even selling all of its airline stock positions at close to the worst possible time. A big part of the thesis for owning Berkshire is that its CEO Warren Buffett and his team are very good at capitalizing on opportunities -- and it didn't look like that was happening.

In the second half of the year, it appears this has changed. Berkshire has acquired Dominion Energy's natural gas business, increased its Bank of America stake by more than $2 billion, invested billions in several Japanese conglomerates, and recently participated in the red-hot Snowflake IPO. So it seems like Berkshire is ready and willing to put its money to work. Berkshire remains a tremendous long-term compounding machine and is a great stock to own whether a market crash hits or not. 

Great businesses in good times and bad (even during pandemics)

Obviously, nobody has a crystal ball. In a full-blown market panic like we saw in March, it's entirely possible that these stocks could take a hit. Even the best-performing out of the three mentioned here, Digital Realty, very briefly plunged about 30% from its pre-pandemic peak before the market came to its senses and realized what a stay-at-home economy would mean for data centers.

However, these are three well-run companies that are recession-resistant and positioned to thrive no matter what the economy is doing. Even if they fall in a market crash, they'll likely snap back quicker than most.

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Matthew Frankel, CFP owns shares of Bank of America, Berkshire Hathaway (B shares), and Digital Realty Trust and has the following options: short January 2021 $23 puts on Bank of America. The Motley Fool owns shares of and recommends American Tower, Berkshire Hathaway (B shares), and Digital Realty Trust. The Motley Fool recommends Dominion Energy, Inc and Snowflake Inc and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares) and short January 2021 $200 puts on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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