It's only a matter of when, not if, the market crashes again. Despite the dramatic plunge in the early coronavirus pandemic, as well as the brief pullback in recent months, the stock market has been on an incredible 13-year run.
From the S&P 500's low point in March 2009 until today, the index has more than quadrupled in value, turning a $10,000 investment into one worth over $67,000.
Yet markets do dip, and patience is needed for them to recover. But not very long, relatively speaking. Data from the Schwab Center for Financial Research shows the average bear market lasts only about 17 months, and 80% of corrections since 1974 have not turned into a bear market.
Image source: Getty Images.
Even after the market collapse at the start of the COVID-19 crisis, when the S&P 500 index lost a third of its value in just about a month, the index regained its lost ground in less than six months and has doubled since then.
Still, another bear market will happen, and a recession will occur. The time currently seems right with rising inflation, stagnating growth, and large percentages of the population out of the workforce.
That's why smart investors prepare for such events, and the pair of stocks below represent excellent companies to buy before the next recession hits. They might not be the sexiest names, but that's not what you're looking for ahead of tough times.
Image source: Amazon.com.
1. Amazon
Few companies are better prepared to withstand the gale-force winds of a recession than Amazon(AMZN 0.86%). Because it is the dominant vehicle for online shopping, it will continue to serve as a lifeline for consumers.
E-commerce accounted for 23% of the $4.58 trillion in U.S. retail sales last year, and Amazon represented 45% of all online sales. Although it attempted to branch out into physical retail by opening a mixed bag of retail stores to target the brick-and-mortar challenge from different angles, Amazon's new CEO, Andy Jassy, apparently believes the online giant should focus on what it does best, and it is shutting down virtually all of them. That should only help its online business grow even more.
Of equal importance is its cloud business, Amazon Web Services, which remains its most profitable segment and helps power the online presence of thousands of other businesses. AWS generated $62.2 billion in sales in 2020, up 40% from the prior year, and is on pace to deliver $71 billion in top-line revenue this year.
That will remain an essential component of Amazon regardless of economic conditions, making the e-commerce giant an easy choice for a pre-recession buy.
Image source: Getty Images.
2. Walmart
If Amazon is the premier online business to buy before a recession strikes, Walmart (WMT 0.35%) is the ultimate physical retailer to purchase. Amazon's failure to succeed in the brick-and-mortar space proves just how effortless Walmart makes a very tricky industry appear. It does on the ground what Amazon does online, and yet Walmart has a line into the digital world too.
Although Walmart has only about a 7% share of the e-commerce trade, putting it a very distant second to Amazon, it's a fast-growing business that indicates the company has learned plenty of tricks from its rival.
The Walmart+ member loyalty program, modeled after Amazon Prime, has between 18 million and 32 million members, depending upon who's counting, but in either case, it's a huge success. For $98 a year, you get free delivery, discounts at gas stations, use of scan & go technology at the stores, and more. Now that Amazon has raised Prime's cost to $139 a year, Walmart+ just might be the more attractive option for many.
But the reason Walmart is the king of retail is its stores and its general commitment to low prices. It generated almost $153 billion in revenue in fiscal 2022, and in a recession that will resonate with consumers who live within just a few miles of one of its stores.
Walmart was able to profit at the expense of many of its competitors during the pandemic because it was deemed an essential business. As it steals market share from them still, the retailer is another top choice for your shopping basket ahead of a downturn.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns and recommends Amazon. The Motley Fool has a disclosure policy.
