IMPORTANT HIGHLIGHTS Visa stands as the global leader in payment processing, benefiting from potent network effects within its business model.
Marsh & McLennan specializes in offering risk management guidance to corporations and has a track record of elevating earnings even in times of economic recession.
Walmart, recognized as a budget-friendly retailer, holds a resilient position to navigate through a potential market decline.
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Here are three stocks you can rely on during a downturn.
The past few years have presented a tumultuous journey for investors with a long-term perspective. The S&P 500 index achieved record highs during the global recovery from the pandemic, subsequently enduring a significant bear market phase in 2022. Presently, the index has rebounded by 27% from its October lows, fostering optimism among numerous investors who speculate the emergence of a fresh bull market.
Notwithstanding the recent surge in the market, an element of uncertainty still looms over the immediate horizon. Interest rates have escalated to levels not witnessed in two decades, casting an influence on diverse aspects ranging from commercial real estate to lending activities in the banking sector. This risk associated with heightened interest rates was underscored when Moody’s recently downgraded several regional bank stocks.
In the role of long-term investors, it’s imperative not to become excessively preoccupied with each potential risk capable of precipitating a market downturn. Investment endeavors are oriented toward the long haul, and a prudent approach entails allocating resources toward sound companies capable of navigating through market slumps while flourishing in periods of extended market upswings. Among the options, three stocks that could stand as a secure choice if a market downturn materializes include Visa (V 0.57%), Marsh & McLennan (MMC 0.08%), and Walmart (WMT 0.30%).
Visa commands the largest payment network globally, facilitating a total volume of over $13.5 trillion in transactions during 2021. This figure stands at nearly twice the magnitude of Mastercard’s ($7.7 trillion) and significantly surpasses American Express’s ($1.3 trillion) volume. Renowned for being the most widely embraced payment network internationally, Visa maintains its expansion trajectory through its portfolio of Visa-branded offerings. This robust network effect imparts a substantial competitive edge over its counterparts.
As highlighted in the introduction, there exists apprehension concerning the impact of elevated interest rates, which have attained levels unseen in decades. These heightened rates coincide with the occurrence of U.S. consumer credit card debt crossing the $1 trillion mark for the first time, as reported by the Federal Reserve Bank of New York.
A potential downturn could potentially decelerate consumer spending, potentially denting Visa’s revenue streams. However, Visa remains deeply ingrained within spending dynamics and is continuously augmenting its capacities. The company recently completed the acquisition of Pismo, a payment platform with operations spanning Latin America, Asia Pacific, and Europe. This strategic move positions Visa to introduce innovative payment and banking products, enabling it to keep pace with fintech firms offering comparable services.
Another favorable aspect of Visa’s business model is its distinct approach to credit card debt, which sets it apart from certain competitors. Visa’s primary emphasis revolves around overseeing its payment networks and collecting a modest fee for each transaction to facilitate this process. Consequently, the company isn’t exposed to the same credit-related risks that others could encounter during periods of economic contraction.
Visa’s dominance in the payment network realm remains steadfast, marked by its ongoing diversification efforts aimed at competing with fintech players and safeguarding, if not enhancing, its market share. The company stands to gain from the escalating trend toward cashless transactions, and the robust network effects it possesses underscore its credentials as a resilient investment even in the face of a potential market crash.
2. Marsh & McLennan
In recent times, enterprises have grappled with a considerable amount of uncertainty, encompassing the pandemic’s impact, supply chain intricacies, fluctuations in capital markets, climate-induced calamities, and geopolitical instabilities. It’s within this dynamic landscape that Marsh & McLennan finds its stride.
Marsh & McLennan specializes in offering counsel to businesses for risk management and serves as a conduit between companies and insurers to mitigate these risks. The company also delivers consultative services to enterprises, assisting them in navigating realms such as compensation and benefits, retirement strategies, investment management, and other matters pertinent to the workplace.
The consultancy has witnessed robust expansion in its operations in recent years, primarily propelled by its insurance brokerage division. Insurance perpetually remains a sought-after product, and Marsh & McLennan’s brokerage arm represents a stable source of cash flows, equipping it to endure challenging economic scenarios. The current inflationary environment, specifically, has furnished tailwinds for its insurance brokerage operations.
According to data from the Marsh Global Insurance Market Index, global commercial insurance rates have climbed for an unbroken stretch of 23 quarters. Marsh secures commissions and fees from insurers upon referring clients to them, and as insurance costs rise, so do the company’s earnings. Over the initial half of this year, the firm’s revenue derived from risk and insurance services has surged by 11%, contributing to an overall revenue uptick of 8% compared to the previous year.
CEO Dan Glaser relayed to investors that “during periods of global unsettlement, the demand for our services surges.” He additionally underscored that Marsh & McLennan has managed to enhance its earnings per share throughout every recessionary phase since 1962, solidifying its stature as a reliable investment even in the face of a possible market downturn.
Instances of market crashes tend to coincide with periods of economic fragility. Interestingly, it’s precisely during these episodes of economic vulnerability that a company like Walmart flourishes.
As the world’s largest retailer, Walmart has cemented its position through a business model centered around offering consumer goods at economical prices. This positioning renders it a preferred destination for shoppers when budget constraints tighten. The company also operates Sam’s Club, an exclusive warehouse concept akin to competitors Costco and BJ’s Wholesale Club. Notably, in the previous year, customers turned to Walmart seeking cost-saving options amidst one of the most pronounced inflationary phases since the 1980s. Over that period, Walmart recorded a 7% surge in comparable sales, with Sam’s Club experiencing an even more substantial growth of 14.6%.
Even within today’s economic landscape, characterized by mixed signals emanating from consumer spending patterns, Walmart remains robust. In its latest earnings report, the company registered substantial expansion, notably driven by grocery and pharmacy segments. Concurrently, there was a decline in general merchandise sales. The trend underscores people’s prioritization of essential purchases, a phenomenon that has negatively impacted some rivals such as Target. Target, heavily reliant on discretionary spending for its growth, revised its earnings outlook for the year downwards, while Walmart chose to elevate its guidance.
With its extensive array of budget-friendly product offerings, Walmart consistently emerges as the favored choice for cost-conscious consumers. Consequently, in the event of a market crash, Walmart once again asserts its status as a dependable stock choice, one that can help navigate the turbulence associated with market volatility.