Recent market declines may have prompted you to ask yourself this one dreaded question: When will the next market crash happen? It's not a fun subject to think about, but it's always a good idea to be prepared. Even in the best of times, being prepared will help you keep calm and make the best decisions for your portfolio.
No one knows when the next crash will happen. But when it does, it's a great idea to buy shares that may suffer at that moment, but that have everything it takes to rebound once the overall market situation improves. These are companies with strong businesses now and solid future prospects. In the world of consumer goods, I would pick the following top retail stocks.
Image source: Getty Images.
1. Target
Target (TGT 1.28%) was one of the winning retailers during the worst days of the coronavirus pandemic. There are a few reasons for that. And each one of these reasons should help Target excel in future difficult times. Target's put in place a variety of pickup and delivery options. The company's digital and in-store businesses work hand-in-hand; more than 95% of Target's sales are fulfilled by its stores.
And Target has tailored the size and offerings of its stores to the local community. The company even pledged to spend as much as $5 billion this year to invest in elements that will boost long-term growth. It will be spending on digital and physical store experiences, fulfillment, and the supply chain.
So far, Target has seen the results. Its return on invested capital (ROIC) is climbing.
TGT Return on Invested Capital data by YCharts
And, in the fourth quarter, in spite of investments in the business, Target was able to reach a record high EPS under generally accepted accounting principles (GAAP) of $3.21. For the full year, Target generated more than $100 billion in revenue. That represents growth of more than 35% over a two-year period. Importantly, digital and physical store sales are booming. Digital sales climbed by almost $13 billion from 2019 through last year. And physical store sales increased by $14 billion in that period.
Target shares have held up well so far this year compared to the overall market.
All of these elements together make me confident about Target's ability to weather a market crash -- and continue to grow earnings over the long term.
2. Amazon
The pandemic also resulted in growth at e-commerce giant Amazon (AMZN -1.14%). In fact, the company almost doubled its fulfillment network in two years just to keep up with demand. And over time, Amazon has grown both annual revenue and net income.
Recently, though, external elements have weighed on Amazon's earnings -- such as inflation and supply chain issues. And the company disappointed investors with a decline in operating income in the first quarter and even a net loss. Amazon's shares have followed -- falling 34% so far this year.
So, why would I buy Amazon shares in a market crash situation? For two reasons. First, the e-commerce business has an important growth driver that will lead to increasing revenue over time. And that's its Prime subscription service. That service reached more than 200 million members worldwide as of 2020. And it continues to grow. Amazon made a positive move recently: It increased its Prime subscription fee in the U.S. Once Amazon has managed today's headwinds, I expect Prime to help put revenue back on track.
Now here's my second reason to buy Amazon. Amazon Web Services (AWS) -- the company's cloud computing business -- continues to flourish. By this I mean double-digit sales and operating income growth. Those measures climbed to $18.4 billion and $6.5 billion, respectively, in the first quarter. Importantly, AWS generally represents more than 70% of Amazon's total operating income. So, AWS is a key player in the Amazon story.
All of this means that, even if Amazon suffers during a future market crash, earnings and share price momentum are very likely to return -- and last over time.
