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There’s no official definition of a bear market, but stock market investors and commentators typically say that it is when stock prices are down by at least 20% from recent highs.
Investors can use various strategies in bear markets or markets where stock prices are trending down; the right approach depends on their risk tolerance, investment horizon, and goals.
Covid battered the stock market, and inflation concerns have dampened hopes for a quick recovery from lockdowns. Increasing geopolitical tensions and macroeconomic risks also drive investors to seek out stocks with bear market potential, and their primary objective is to protect themselves from high inflation and volatility. While these stocks might perform well intra-day, investors are looking for medium-term potential.
Markets fall when investors feel fear and uncertainty. The NASDAQ 100 Index is down about 16% year-to-date (YTD), while the S&P 500 is down about 10%. What do you make of this? Investors know bear market stocks can perform well despite the bigger picture. Economic setbacks or tighter liquidity don’t usually affect non-cyclical stocks.
Non-cyclical stocks can provide a limited hedge against stock market crashes, but the more effective strategy is to employ a long-short strategy against your long portfolio. You can get an insight into how investors can do this by signing up for my course.
Their earnings can often withstand these challenges. In bear markets, health care, commodities, transportation stocks, utilities, and precious metals do best. If the market enters uncertain times, these are six stocks to purchase which are likely to perform well in a bear market.
Best Bear Market Stocks
United Parcel Service (UPS)
United Parcel Service (UPS) delivers packages around the globe. It services about 25 million packages a day with 127,000 vehicles and over 500 planes.
On February 8, the logistics giant announced its Q4 2021 results, which was $27.8 billion, and revenues grew 11.5%. Net income increased 91% YOY, and adjusted earnings rose 38%. The diluted earnings per share of $3.59 were up by 35% year over year.
As a result of higher costs, UPS has raised its prices by 5.9%. Its operating margin reached 13.2% in 2021, its highest in 15 years, thanks to e-commerce growth and increasing demand.
A recent 49% dividend increase supports a dividend yield of 3%. Furthermore, revenue growth is forecast at just 4.8% for 2022.
In the past year, UPS shares have risen almost 25%. Shares trade at 1.9 times trailing sales and 16.4 times forward earnings. Currently, UPS stock is trading at $249 per share.
Costco Wholesale (COST)
The fifth-largest retailer in the world is Costco Wholesale, a membership-only retailer. It can purchase large amounts of limited inventory using its vast warehouse network, and management can therefore keep prices low and appeal to less price-conscious consumers.
March 3 marked Costco’s Q2 FY22 results. Profit crept up 16% YOY to $50.9 billion. The company earned $951 million in net income or $2.92 per diluted share in the prior-year quarter. The company had $11.8 billion in cash and equivalents.
In the first half of the fiscal year, comparable sales rose 14.7%. Costco’s membership program increases customer loyalty, and members get consistent profits in return – something Wall Street prefers. Membership fees will likely increase in 2022, which will provide significant bottom-line growth.
In the past 12 months, COST stock has gained nearly 61%, and the stock is down around 5% year-to-date. The stock price is trading at 41.5 times forward earnings, and price forecasts are $572.50 over the next 12 months.
The third-largest wireless carrier in the US is AT&T, based in Dallas, Texas. With its mobile and broadband services, it connects roughly 100 million customers.
Analysts expect 5G infrastructure to generate organic growth for the wireless operator. The management points out, “5G helps bring ‘smart’ health care to life – those that use technology to optimize patient and staff experiences.”
During the fourth quarter of 2021, AT&T announced results. YOY revenue declined 10.4%. Nevertheless, net income surged to $5 billion, or 69 cents per diluted share, from a net loss of $13.9 billion a year ago. Cash flow came in at $8.7 billion.
In early February, AT&T announced plans to divest WarnerMedia and rebrand it as Discovery (NASDAQ: DISCA, NASDAQ: DISCK). As a result, T stock investors will receive 0.24 Warner Bros shares. At the same time, the share price of AT&T stock will be $1.11 per share following the acquisition of shares by Discovery (WBD).
Shares of AT&T trade for $23, down 23% over the past year. 7.7 times forward earnings and 1 times the trailing sales gives a cheap valuation. AT&T stock’s 12-month median price forecast is $28.
Colgate-Palmolive owns scores of market-leading pet nutrition, personal care, and cleaning brands. So, most macroeconomic headwinds do not affect its revenue streams, and the company’s various products grow regardless of the overall economy.
January 28 brought a Colgate financial report of 2% YOY sales growth. Net income for the prior-year quarter was $647 million. The cash position ended the quarter at $832 million.
With a payout ratio of 57%, CL has a 2.6% dividend yield. For 2022, management projects top-line growth of 3%.
Prices are at $75, down almost 11% YTD. The stock’s market price is 23.4 times forward earnings and 3.8 times trailing sales. CLI shares are forecast to reach $90 over the next 12 months.
West Fraser Timber (WFG)
West Fraser Timber is a global forestry company with operations in Canada. It manufactures laminated veneer lumber (LVL), plywood, pulp, medium-density fiberboard (MDF), newsprint, and lumber.
WFT released its Q4 2021 results on February 15. Sales fell 13.6% from last year. Compared with a year ago, net income was $334 million, or $3.13 per diluted share.
Analysts expect lumber prices to remain high. Lumber futures in Chicago recently topped $1,400 per thousand board feet. New home construction has helped WFG investors. Costs are soaring, but supply is an issue.
The share price of WFG has risen nearly 40% in the past year to $93. Currently, the shares are trading at a discount to forward earnings of 5.8 times and trailing sales of 1 time. The 12-month median price projection for WFG stock is $121.57.
VanEck Agribusiness ETF (MOO)
The VanEck Agribusiness ETF is our next pick. It invests in companies that generate more than half of their revenues through agribusiness, including seeds, fertilizers, livestock, farm equipment, and aquaculture.
MOO trades on the MVIS Global Agribusiness Index. Currently, the top 10 holdings comprise 57% of its $1.2 billion net assets. The consumer staples sector makes up 28.7%, materials at 28.3%, and health care at 22.1%.
MOO shares hit a record high in recent days. Over the last 12 months, the ETF gained 10%. With the war in Ukraine and high inflation, many of the stocks that make up the fund might make new highs.
US stock indices have had a torrid time recently, but they’re not yet down 20% from their highs. However, it is wise to look for investments that can survive corrections. This article outlines the most profitable stocks to buy in a bear market for investors considering the best investments. In a bear market, picking the right stocks is essential, and it is also a sensible idea to seek out knowledgeable investment resources when the markets are volatile.
Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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Tim Thomas has no positions in the stocks, ETFs, cryptocurrencies, or commodities mentioned.
This post was produced and syndicated by Tim Thomas / Timothy Thomas Limited.
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