History Says a Market Crash Would Be a Buying Opportunity for These 2 Industrial Stocks

Right now, investors are wide-eyed over industrial stocks that are benefiting from the artificial intelligence (AI) infrastructure build-out. It is lifting the entire sector, bringing valuations to premium levels. The thinking on Wall Street is that this AI infrastructure investment will continue to grow forever, meaning that these stocks deserve premium multiples.

Eventually, the stock market will crash, perhaps as the AI boom morphs into a bust. If that happens, these two industrial stocks not associated with the AI boom will be great buys once again.

WM's constant processing needs

WM (NYSE: WM), formerly known as Waste Management, is the largest waste-removal, recycling, and renewable-energy company in North America. You may use its services for your home or company.

WM signs long-term contracts to manage waste in areas, with built-in price flexibility to allow it to keep prices up with inflation. This makes it a steady growth stock, but not something that will blow your socks off on the income statement. Revenue was up 4% year over year last quarter.

Long-term, WM is reinvesting to expand its recycling and landfill-to-energy production segments, which can help create an even deeper ecosystem that customers will rely on. Landfills can now be built to safely convert waste into electricity that can be sold back to the grid, which will be a nice growth driver for WM in the future.

Right now, WM trades at a premium price-to-earnings ratio (P/E) of 29, even though it is not seeing rising demand because of AI. However, in a market downturn, it could be a cheap stock to buy that is insulated from the business cycle. No matter what happens in the economy, trash needs to be collected.

After the 2008 market crash, WM looked cheap. It has produced a total return of 884.4% since the beginning of 2009 and could do so again after the next crash, whenever it occurs.

WM Total Return Level data by YCharts.

The transportation backbone of North America

Canadian Pacific Kansas City (NYSE: CP) is a newly formed railroad resulting from the merger of Canadian Pacific and Kansas City Southern in 2023. The combined rail network connects Canada to the Midwest of the United States, the Great Lakes, and the Northeast, running through the middle of the country and into Mexico.

The rationale for the acquisition was to have one massive railroad operate in the three major countries in North America. With the onshoring of manufacturing back to North America from Asia, Canadian Pacific Kansas City is positioned to win rail volumes for commodities and manufactured parts shipped to and from Mexico.

Last quarter, its revenue grew 13% year over year to $4.2 billion, with efficiency ratios improving. Volumes increased 4%, showing that the railroad can implement price hikes to keep up with inflation. Competition is low, given that it would be nearly impossible for another railroad to replicate the assets Canadian Pacific Kansas City already has in its portfolio today.

Image source: Getty Images.

Volumes may see pressure in a market downturn, but a company like Canadian Pacific Kansas City is well-positioned to emerge strongly on the other side. From the beginning of 2009, it has seen a total return of 1,460%, which is even better than WM's.

A manufacturing renaissance across Mexico and the central United States would be a boon for Canadian Pacific Kansas City, helping volumes grow for decades to come. It may not look cheap today with a P/E ratio of 28.5, but in a market downturn, this is one of the easiest stocks you can buy with confidence to hold for the long haul. Railroads aren't getting replaced anytime soon.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Canadian Pacific Kansas City. The Motley Fool recommends WM. The Motley Fool has a disclosure policy.