For many investors, the word "stock market crash" is enough to send a shiver down their spine. But sooner or later a crash in the stock market will happen.
Unfortunately, we will never know in advance exactly when a crash will begin, how long it will last, or how severe the decline will be. In many cases, we won't even know what triggered a big drop until it's in full swing. But what we do know is that the benchmark S&P 500 (WKN: A0AET0) has experienced 38 double-digit declines over the past 71 years. That's an average of a double-digit percentage decline every 1.87 years, showing how commonplace crashes and corrections are.
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Crash triggers in the stock market are building up
Right now, there are more than enough triggers on Wall Street to push the broader market significantly lower. For example, history clearly does not speak for the market in the short term. After each of the previous eight bear market lows (going back to 1960), there was at least one double-digit percentage decline in three years. This suggests that it is highly unlikely that the near-perfect recovery we have seen since the March 2020 trough will continue unabated.
Valuation remains another major concern. Over the past six months, I've pointed out that the Shiller price-to-earnings ratio of the S&P 500 has been rising. The Shiller P/E ratio takes into account inflation-adjusted earnings over the past ten years. It has only happened five times in history that the index has exceeded and held a Shiller P/E ratio of 30 (including now), and the previous four instances resulted in the S&P 500 subsequently losing at least 20% of its value.
In addition to history and valuation, there are other factors that play a role. Inflation picked up sharply and could constrict consumers' wallets. There is also a growing likelihood that the Federal Reserve may take its foot off the proverbial gas pedal with respect to monetary policy and quantitative easing. And don't forget the coronavirus delta variant that threatens to slow reopening efforts in various parts of the U.S. and the world.
We may not be able to pinpoint exactly when a crash will occur, but at this point, the downward trend is inevitable.
The market's pain is the long-term investors' gain
However, bad news is actually good news for long-term beginners. That's because crashes and corrections allow investors to buy high-quality stocks at a discount. When the next stock market crash comes, the following trio of surefire stocks may be available for purchase on the cheap.
Bank of America
Bank stocks may not be at the top of most investors' lists during a crash, but money house giant Bank of America (WKN: 858388) is a smart bet to help you build wealth.
To state the obvious, bank stocks are cyclical, and BofA is no exception. When a crash or correction is associated with an economic contraction, it's always possible that banks could see variable weakness in certain aspects. But one of the main reasons to buy bank stocks is to benefit from disproportionately long periods of economic expansion. While recessions are measured in months, an economic expansion can last for many years, if not a decade. Thus, buying a stock like Bank of America is simply a cheap bet on the long-term growth of the U.S. economy.
Something important to keep in mind with Bank of America is interest rate sensitivity. While this worked against the company in the second quarter, rapidly rising inflation suggests higher borrowing rates are on the horizon. According to BofA, a 100 basis point parallel shift in the yield curve would result in an additional $8 billion in net interest income over 12 months. Virtually all of that would flow directly into the bottom line.
To lower its operating costs and attract younger customers, Bank of America has also invested aggressively in digitization initiatives. It ended June with 40.5 million digitally active users (up nearly 5 million from three years earlier) with 44% of sales completed online or with a mobile app, up 15 percentage points from the second quarter of 2018. Forcing customers to do their banking digitally allows BofA to consolidate its branches and ultimately lower its non-interest costs.
Ping Identity
Another surefire stock you can safely buy when the next crash comes is cybersecurity identification specialist Ping Identity (WKN: A2PQ5E).
Why Ping? First of all, cybersecurity has become a fundamental service. As more companies than ever shift their presence online and move their data and customers' data to the cloud, the need to protect that information increasingly falls in the lap of companies like Ping Identity. And remember, hackers and robots don't take off just because Wall Street is having a bad day.
At the heart of Ping's success is the Ping Intelligent Identity Platform. This cloud-based platform relies on artificial intelligence to become more efficient over time at identifying and responding to potential threats. Rather than relying solely on on-premise security solutions, Ping's cloud-based option acts as a hybrid that also helps verify user identities, authorize access to certain data and monitor user actions.
Although Ping had a relatively rough 2020 as some of its customers opted for short-term license subscriptions, consistent mid-teens growth in annual recurring revenue (ARR) shows that its software-as-a-service subscription segment is firing from all cylinders. Because subscription revenue is recognized over the life of the subscription, it can take a while for revenue growth to keep up with recurring revenue each year. But within the next two years, we should really start to see Ping's annual sales growth increase.
A profitable cybersecurity stock in a surefire growth industry is a smart buy during a crash.
Zoom Video Communications
The third surefire stock that investors can add to their portfolios during the next stock market crash is cloud-based web conferencing platform Zoom Video Communications (WKN: A2PGJ2).
It is undisputed that Zoom was absolutely in the right place at the right time when the pandemic struck. As the traditional workplace has been turned upside down, companies have turned to Zoom's conferencing solutions to keep projects and workflows on track. It is not surprising that sales in 2020 will more than quadruple compared to the previous year.
The big question is: can this growth continue? While expecting a quadrupling of sales year-on-year is unrealistic, sustained double-digit growth is a very real expectation. Zoom's platform has proven it can make workplaces more efficient, and it's a perfect fit for what will likely be a hybrid office/home office environment across the country in 2021 (and beyond).
Nonetheless, Zoom continues to think of ways to bolster its growth prospects. Last week, the company announced that it will acquire Five9 (WKN: A1XFG9), a cloud contact center software provider, for $14.7 billion – a moderate premium considering where Five9 closed in the last trading session. This deal should prove complementary to Zoom's focus on promoting Zoom Phone, a cloud phone system developed as a digital alternative to traditional communications.
And if you need another good reason to believe in Zoom, remember that CEO and founder Eric Yuan owns a significant amount of stock. When the interests of shareholders align with those of the founders, who have a lot to lose, good things tend to happen.
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This article represents the opinion of the author, who may disagree with the "official" recommendation position of a The Motley Fool premium advisory service. Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier and richer.
Bank of America is an advertising partner of The Ascent, a company of The Motley Fool.