With geopolitical and economic risks growing, I think there is a rising chance of a stock market crash in the near future.
However, it is impossible for me to project what the future holds for the stock market. As such, I am not planning to take drastic action just yet. A stock market crash could happen in the next few weeks or months. Or it might not. I cannot tell at this point.
With this being the case, I have been looking for FTSE 100 stocks to add to my portfolio with the potential to outperform even if the market slumps.
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FTSE 100 dividend champion
One stock I have been buying for my portfolio along these lines is British American Tobacco (LSE: BATS).
While I cannot guarantee this stock will outperform the market in a crash, I can say it is unlikely sales of cigarettes will decline dramatically if the market falls. Cigarette sales tend to be pretty predictable, although they are steadily declining.
This is the biggest challenge the establishment faces right now. Traditional cigarette sales are falling, and the firm is having to invest heavily in its so-called ‘reduced risk’ business. These products mainly consist of e-cigarettes and tobacco heating derivatives.
According to the company’s latest trading update, sales of these products are growing rapidly, but the division is still unprofitable. Sales expanded 42% in 2021, but the division still lost £100m.
Despite the losses, it is clear to me the business is moving away from its traditional tobacco business. That is a positive. Another positive is the corporation’s current dividend plan and cash return policy. At the time of writing, the stock supports a dividend yield of 6.4%.
What’s more, alongside the company’s full-year 2021 results, management unveiled a £2bn share buyback allocation. This should help reduce the number of shares outstanding and, as a result, boost earnings per share. Ultimately, this should lead to faster share price growth for investors, although there is no guarantee the market will respond positively.
Stock market crash protection
The FTSE 100 company might not be the perfect business. Any corporation that is suffering what can only be described as a terminal decline in sales of its main product is always going to be riskier than most.
However, based on my analysis of the tobacco market, British American’s own forecasts, and the outfit’s expansion into ‘reduced risk’ products, I think the company will protect my portfolio in a stock market crash. The firm expects to deliver revenue growth of 3-5% over the next year while reducing new product losses.
With this steady growth on the horizon, I think the firm has the potential to offer my portfolio protection in an uncertain environment. That is why I already own the shares and would be happy to buy more today.
