Although the market has been in a significant drawdown recently, it's still nowhere near the levels of what anyone should consider a "crash." Still, investors need to have their buying list ready to go in case of a crash, as it's easy to get wrapped up emotionally when you see your portfolio down 20% or more. By doing the research and forming a list before a crash occurs, you can take the emotions out of the decision and simply ask yourself: Will this company be affected by the crash three to five years down the road?
Three companies that top my list as the best stocks to buy during a crash are Taiwan Semiconductor Manufacturing (NYSE: TSM), MercadoLibre (NASDAQ: MELI), and CrowdStrike (NASDAQ: CRWD). Each has a unique reason for being on the list, and all of the underlying companies are well-positioned to be OK in nearly any downturn.
Taiwan Semiconductor
Taiwan Semiconductor is a chip foundry, meaning it fabricates chips for those who cannot do so themselves. Because this is a highly specialized field and it would be cost-prohibitive for every company that makes electronic devices to have its own foundry, nearly every high-technology device has some chips produced by Taiwan Semi. In short, if you think that five years from now we will be using more technology with more advanced chips in them, Taiwan Semiconductor is a great investment.
However, the chip industry is notoriously cyclical, which means that demand for chips rises and falls in a fairly dependable cycle. Although it's hard to predict these cycles, they do occur due to large-scale shifts in manufacturing supply and end-user demand. When they happen, stocks will often crash because the financials aren't nearly as good as they once were.
This is just part of owning a chip company like Taiwan Semi. If the broader market crashes due to an economic downturn, consumer demand for high-technology devices will drop and disproportionally affect Taiwan Semiconductor. However, once the economy recovers, that demand will return and send the stock to new highs.
Although you have to deal with volatility when owning Taiwan Semi, I think it's too important a company not to own shares because of how integrated it is with the latest cutting-edge technology.
MercadoLibre
MercadoLibre is a Latin American e-commerce and fintech leader. Some describe it as Amazon (NASDAQ: AMZN) and PayPal (NASDAQ: PYPL) combined into one company and purposely built to serve Latin America. As a result, it gives investors some global diversification that is often missing from portfolios. Although the next market crash may be worldwide, it could also result from a domestic issue, leaving most Latin American economies unharmed. Still, with MercadoLibre being listed on a U.S. exchange, its stock would likely sell off alongside others, opening the door for investors to buy a company that's still doing well and is not exposed to U.S. trends.
Furthermore, Latin America is further behind the e-commerce and fintech rollout that the U.S. has already experienced. Although this trend may slow down if there's a global recession, it's hard to imagine it stopping completely.
CrowdStrike
Although companies need many critical software products to operate effectively, none is more important than cybersecurity. If you can't safely operate and store data, customers will lose faith and take their money elsewhere. That's why companies like CrowdStrike, a major cybersecurity software company, will continue to do well during a market crash.
While it will be difficult to onboard new clients, and their existing customers aren't likely to spend more, CrowdStrike will be able to maintain their current customers. This makes CrowdStrike a company with a low floor and a high ceiling, as it won't lose much spending during a recession but should be able to rebound strongly after the economy turns around.
Because CrowdStrike is highly valued, a crash could cause this stock to be sold off deeper than others because of its premium valuation. But when the market starts to recover and CrowdStrike's growth returns, it will likely have a tremendous rebound, giving investors solid returns.
This list isn't focused on stocks that will thrive in a stock market crash; it's focused on stocks that will likely fall significantly and rebound strongly as the market recovers. Because I'm a long-term investor, my time frame is three to five years, rather than just the current year. That short-term focus could cause investors to rotate into safer stocks during a downturn to preserve money, rather than buy beaten-down stocks that will emerge stronger on the other side.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Keithen Drury has positions in Amazon, CrowdStrike, MercadoLibre, PayPal, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Amazon, CrowdStrike, MercadoLibre, PayPal, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.
