Markets are a mess. Stocks began 2016 on the wrong foot, with the S&P 500 and the Dow Jones Industrial Average both getting off to their worst starts ever. It’s now routine to see, like we’re seeing today, the Dow shed triple digits in the course of a single day.
The reasons are myriad. China’s woes are finally reverberating all the way across the globe and causing turmoil on Wall Street. Oil prices still are plumbing the depths of $30 per barrel. Entire nations are entering crisis mode. Both Europe and Japan seeking to print money until their problems go away.
It’s not a pretty scene.
But when there’s this much blood in the streets, it’s time to start seeking out the best stocks to buy.
Stocks have been hammered. Discounts are aplenty. So even if we’re not necessarily at a bottom right now, it’s at least time to start monitoring the market to look for stocks to buy for when the market finally jolts back to life.
Here, in no particular order, are 10 of the best stocks to buy for when the market finally does find its bottom.
The 10 Best Stocks to Buy for the Turnaround: Cisco Systems (CSCO)
Market Cap: $120 billion
Network communications giant Cisco Systems (CSCO) is off to an even worse start to the year than the Dow and S&P 500 (down 9%), already having lost 16% of its value in 2016.
That’s a little surprising for a few reasons.
Firstly, Cisco shares trade at insane, bargain-bin prices, plain and simple. CSCO trades at less than 10 times forward earnings, but when you factor in the $11.64 per share in cash Cisco has on hand, CSCO trades at a tiny forward P/E of 5.
That sort of multiple is low no matter how you slice it, but for a company as large and reliable as Cisco, it’s frankly absurd.
And although the year is young, I was surprised to see CSCO losing to the indices in 2016 simply because it is a reliable, large-cap dividend stock. Investors are very clearly de-risking their portfolios — that means many will flock to fixed income, yes, but it also means people will shift money into blue-chip dividend stocks like CSCO.
That’s the other thing: Thanks to its pain, Cisco now boasts a 3.7% dividend, too.
Without a doubt, CSCO is one of the best stocks to buy in the market today.
The 10 Best Stocks to Buy for the Turnaround: Dollar General (DG)
Market Cap: $21 billion
Unlike Cisco, Dollar General (DG) isn’t worth hundreds of billions of dollars. But it is worth $20 billion, making it a large-cap company, and as I mentioned just a moment ago, I feel strongly that a flight to safety on Wall Street will result in subsequent outperformance by large- and mega-cap names.
But merely being a large-cap stock doesn’t automatically mean DG is a surefire stock to buy in the midst of a selloff. What’s unique about Dollar General is its insulation to such crises.
As a for instance, on Friday, Jan. 15, the Dow Jones was off nearly 400 points, and only 11% of stocks in the stock market universe rose that day. DG was a part of that elite 11% club.
That’s likely because, as a discount retailer, investors expect its business to actually improve in difficult times, such as when consumers become more price-conscious.
The 10 Best Stocks to Buy for the Turnaround: Walgreens Boots Alliance (WBA)
Market Cap: $87 billion
Walgreens Boots Alliance (WBA) is second only to CVS (CVS) in the drugstore industry, and for all intents and purposes, those two function as a duopoly. Beating the wider market by about 2% in 2016, WBA checks all the boxes you want checked right now as you’re looking for stocks to buy.
It’s a stable, relatively predictable company that also pays a modest dividend, about 1.8%. WBA also sports solid fundamentals and trades at less than 16 times forward earnings and just 0.8 times sales.
Over the long-term, Walgreens should also benefit from the graying of America, as baby boomers get more and more prescriptions filled at their nearest Walgreens.
And with extra coin in their pockets due to savings at the pump, it’s likely retail sales will have an upward bias this year as well.
The 10 Best Stocks to Buy for the Turnaround: UnitedHealth (UNH)
Market Cap: $109 billion
Healthcare insurer UnitedHealth Group (UNH) knows a thing or two about outperformance. Over the past five years, UNH stock is up 185% walloping the returns of both the Dow Jones (+35%) and S&P (+46%) by a country mile.
UNH actually reported some disappointing news of late, with projected losses from Affordable Care Act plans jumping from a range of $400 million-$425 million to more than $500 million now.
However, UnitedHealth has plans that should trim those losses — namely by trying to withdraw from the plans.
The 10 Best Stocks to Buy for the Turnaround: Microsoft (MSFT)
Market Cap: $420 billion
As the third-largest company in the world, Microsoft (MSFT) more than qualifies as a massive and reliable business. With CEO Satya Nadella leading the company into cloud computing as it moves on from the nightmarish Ballmer period, he’s proven a wise leader.
Turning Office into a subscription service has created huge streams of recurring revenues for the software giant, and the company is even leading the charge into virtual reality by supporting Facebook’s (FB) Oculus Rift, due out in March.
So it’s not just the fact that MSFT is huge and pays a 2.8% dividend that makes it one of the best stocks to buy now — it’s the fact that the company is actually doing some cool things, too.
The 10 Best Stocks to Buy for the Turnaround: Johnson & Johnson (JNJ)
Market Cap: $269 billion
Johnson & Johnson (JNJ) has been such a good stock for such a long time, it’s unbelievable. With operations all over the globe, JNJ is part-Big Pharma, part-medical device company and part-consumer goods stalwart.
The 3.1% dividend yield is nothing to scoff at, especially when you notice JNJ has been growing its dividend payout for a remarkable 53 consecutive years — in other words, since the last days of the Kennedy presidency.
As one of only three companies in the world with a perfect AAA credit rating (Microsoft is also one of those three), the stock market doesn’t get much safer than JNJ.
You can already clearly notice investors favoring JNJ above the rest of the market, with shares outperforming indices by about 8 percentage points in the last six months and about 3 percentage points already in 2016.
The 10 Best Stocks to Buy for the Turnaround: Ulta Salon (ULTA)
Market Cap: $11 billion
It’s not just household names that will be intelligent buys during a panic — slightly lesser-known companies with consistent growth and execution are always welcome on the buy list, too.
That’s precisely what Ulta Salon (ULTA) is, and if you’re willing to take a little more risk by buying this stock, which is up 33% in the past year, you could be rewarded with a lot more gains.
I named ULTA one of the top five stocks to buy for 2015, which ended up being an awfully good call — shares roared 44% higher. I see Ulta’s current dip as potentially another good time to buy into this growth company, which plans on growing its store count by at least 100 per year over the next four years.
Coupled with same-store sales growth, that’s a recipe for enormous gains.
The 10 Best Stocks to Buy for the Turnaround: Snap-On (SNA)
Market Cap: $9.3 billion
Snap-on Incorporated (SNA), another unconventional pick when it comes to choosing the best stocks to buy, makes, markets and sells tools and diagnostics equipment. Frequently used by car mechanics and repair professionals in the aviation industry, Snap-on also sells its wares to customers in agriculture, military, and mining end-markets.
It was my nomination for the “Best Stocks for 2016” competition, in which 10 market experts, financial gurus and business journalists selected the 10 best stocks to buy for 2016. Although I’m currently in third place, I still think SNA stock will triumph over the rest of the competition. As I noted when I originally picked Snap-On, there’s a powerful trend working in SNA’s favor nowadays:
“Moreover, as cars become more complex, they increasingly contain higher-tech electronics and sensors, and different materials. Translation: More advanced tools and diagnostics will also be needed.”
I believe that trend will be powerful enough to lift SNA not just in 2016, but in the years beyond.
The 10 Best Stocks to Buy for the Turnaround: Merck & Co. (MRK)
Market Cap: $144 billion
Like Johnson & Johnson and Walgreens, Merck (MRK) too is a play on the aging American demographic. As one of the largest drug manufacturers on the planet, Merck is both diversified and an obvious bet that as we age, we’ll get more rickety, and start forking over more money to MRK and its competitors for remedies to our ailments.
I truly believe you can’t go wrong riding a trend like that. I also truly believe that investors appreciate Merck’s generous 3.6% dividend — especially since the payout ratio of 51% insinuates the dividend appears to be sustainable as well.
Wall Street has tended to agree with me thus far in 2016, with Merck’s YTD losses of 4% registering as only half the 8% fall in the benchmark to-date.
The 10 Best Stocks to Buy for the Turnaround: Pfizer (PFE)
Market Cap: $188 billion
Notice anything? That’s right, I’m dubbing Pfizer (PFE) one of the best stocks to buy today for all the same reasons I just listed for Merck: It’s demographically wise and it’s a large-cap. Oh, and it pays a 3.9% dividend, the highest of any stock on the list. With 10-year Treasuries paying just 2%, Pfizer’s yield is so good it’s scary.
Did I mention that, as with Merck, the market tends to agree with me? Well it’s true. PFE stock is beating the S&P by 3 percentage points in 2016.
What’s unique to Pfizer is the fact that it just completed a massive $160 billion deal to acquire Allergan (AGN), the maker of the wildly popular wrinkle-treatment drug Botox. The move was widely criticized because it’s an “inversion” deal, which allows Pfizer to legally move its domicile overseas to Ireland, where it will pay a fraction of the taxes it would pay in the U.S.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.