If a stock market crash is coming, I want to own these three companies

With many experts predicting a stock market crash on the horizon, there is no need to fear.

Many are looking at rising interest rates, stubborn inflation data, and mixed forward guidance from companies, concluding that the 2022 downturn is just the beginning.

Market cycles are normal, and even in a recession, not all companies will struggle. I want to look at three companies that have the foundation to succeed in any environment.

J Sainsbury

Most likely you will find some of the 800 stores operated by J Sainsbury (LSE:SBRY).

Founded in 1869, there are three parts:

• Food;
• Merchandise and Clothing;
• Financial Services.

Regardless of the economy, people need basic food and domestic products. With strong fundamentals, a 5.25% dividend, and a large customer base, J Sainsbury looks like an attractive weather company.

The price-to-earnings (P/E) ratio of 10.4x is excellent value compared to its main competitors Tesco at 19.1x. A discounted cash flow calculation suggests a 33% upside to a fair value of 350p from the current price of 263p.

However, the company’s earnings and revenue growth are below the sector average. This suggests that large returns are unlikely in the near term, but I like the long-term growth prospects.

Kier group

Historically, governments have often sought to stimulate growth through infrastructure. Long lead times also mean that financial downturns have limited impact on contract awards.

Kier (LSE:KIE) provides international infrastructure and construction services. Such developments have now been prioritized by the government, passing legislation and campaigning on infrastructure improvements.

The P/E ratio is higher than the sector average, 26.2x vs 11.1x, but considering discounted cash flow, the fair value of 179p is 38% higher than the current share price of 75p.

Future earnings growth of 34% dwarfs the industry average of 4.5%. This shows the company is increasing its efficiency despite difficult financial conditions.

However, annual profit margins are down from 0.7% to 0.4% from 2021. Margins in the sector are notoriously thin. If external factors reduce the ability to deliver projects, then the company may face challenges.

Medical Group

The clearest example of a sector with consistent demand is healthcare. Care is an unavoidable need for a growing and aging population, which drives the need for cost-effective innovation.

Medicine (LSE:MGP) provides teleradiology reporting services to NHS trusts, private hospital groups and diagnostic companies in the UK, Ireland and the US. The company provides essential services, as well as pioneering AI imaging.

These companies are profitable, often rare in innovative health care. Medica sits 89% below the same value at 301p at 159p when calculating discounted cashflow, suggesting growth is not fully priced in. Short- and long-term debt levels can be adjusted, dividends are also guaranteed by cash flow, and profit margins grow. With an industry-equivalent growth forecast of 19%, the company appears to have a sustainable future.

Despite its healthy fundamentals, the company has an expensive P/E ratio of 26.9x. This can dampen investor enthusiasm as few competitors offer similar growth rates for lower prices.

Totally

The three companies discussed all have one thing in common. They are all in high demand regardless of whether the recession hits in 2023. By buying undervalued companies with solid fundamentals and positive forecasts, I can worry less about the prospects of a stock market crash.