Two ways to profit from the worst market in 50 years

After the worst first half since 1970, stock market investors may be struggling with what to do now. The Standard & Poor’s 500 It lost 20.6% in the first six months of 2022, the same rate of loss of 21% during the first half of 1970. Instead of panicking, investors can use that to their advantage.

What could happen then? Well, the last half of 1970 saw the market rise 26.7%. Although no two time periods are exactly alike, the lessons of previous market downturns are more valid than ever. Here’s how to take advantage of the current market to boost long-term wealth creation.

1. Look for low prices that offer value

One of the advantages of this type of deflation is the sale of shares of well-known and successful companies. Investors do not need to be reckless when looking for opportunities. Keep in mind what you already know works. Takes Home Depot (HD 1.67%) as an example. Based on a price-to-earnings (P/E) ratio, Home Depot stock is trading at a price it has only reached once in the past 10 years. This is a company that doubled its annual revenue during that time.

HD PE Ratio Data by YCharts

And Home Depot isn’t the only strong company that’s trading at a discount. apple (AAPL 1.89%) Recorded revenue for the second fiscal quarter (ended March 26). Revenues from its services have reached an all-time high. Sales grew 9% year over year, and it has more than $190 billion in cash. Apple chooses to take on some debt, but it can be managed if things go wrong. And with the stock down 40% in the past 18 months, it’s also trading at its lowest price in several years.

Another cash-rich company with increasing sales is GPS device manufacturer Garmin (GRN 1.48%). It expects sales to grow another 10% this year and has $3.2 billion in cash and marketable securities without debt. Garmin shares are down nearly 30% since the beginning of the year.

These streaming companies are solid holdings in a faltering economy. Apple and Garmin also use that cash to regularly increase the dividends paid to shareholders, providing real income in good times and bad.

2. See what Buffett is buying

It makes sense to take a hint from one of the best investors ever. Berkshire Hathaway (BRK.A -0.48%) (BRK.B -0.65%) It spent more than $51 billion buying back about 9% of its shares in 2020 and 2021. The buybacks of these shares slowed in the first quarter of 2022 when the stock price was rising. Warren Buffett said he tends to increase share buybacks when Berkshire’s stock price drops below 1.2 times book value.

BRK.B data by YCharts

With Berkshire’s stock increasing earlier in 2022, its book value approached 1.6. That helps explain why the company repurchased only $3.2 billion of stock during the first quarter. Instead, Buffett found investments he deemed better values. But the stock is now back close to Buffett’s book value 1.2 times.

With stakes in companies involved in manufacturing, energy and insurance, buying Berkshire shares offers investors instant diversification. It would also not be surprising to see that Buffett increased the pace of buybacks from the first quarter when the company reported second-quarter results at the beginning of August.

Win in a losing market

The market experienced a historically sharp contraction in 2022. Besides being the worst first half in more than 50 years, it was the fourth worst half ever after 1932, 1962 and 1970. There is no way to know if the market will recover in 2022 As happened in the second half of 1970, but he will surely recover in time.

No investor can call the exact bottom, but these negotiating stocks all make solid investments. They are all high quality, proven and easy to understand. With many of them trading at multi-year lows, investors now have a good opportunity to reap their long-term returns.