Stocks are famously the only thing people don’t want to buy when they’re on sale. On an emotional basis, that’s understandable. Who wants to take a chance on even the best stocks to buy when they’re going down?
Put the worries in a box. Because this is precisely what investors should be doing.
Buy low, sell high … remember?
When looking for the stocks to buy, the very first thing you should look for is quality companies that are simply having a hard time with the tape. When a good stock stumbles, it provides an opportunity to pick up more shares at a lower price. That’s why some of the market’s best stocks to buy are ones that are out of the market’s favor (at least in the short-term).
Such companies are fairly easy to find, even when the broader market is in an extended rally. Company and sector-specific risks are always weighing on some stocks at some point in time.
And naturally, if you’re already bullish on a stock to begin with, you should always be monitoring for dips to buy into.
So, in no particular order, here’s a look at seven quality stocks that can be purchased at lower prices these days.
Best Stocks to Buy on a Dip: Bank of America (BAC)
Bank of America Corp (BAC) has been in an uptrend since February, but like all bank stocks, it routinely sells off on interest rate risk.
So now — in the wake of Janet Yellen and the Federal Reserve kicking the rate-hike can down the road — is good time to buy.
BAC stock fell sharply at the end of last week on the ugly jobs report, which originally put that rate hike in danger, and has yet to fully regain the loss. Shares are down more than 1% over the last five days vs. a gain of 1.5% for the S&P 500. And while shares have rebounded out of the February lows, Bank of America shares still are off 14% for the year-to-date.
As we’ve argued before, BAC is a value play for patient investors. It’s the cheapest of the four large money center banks on a price-to-book basis — it trades at just 63% of book — has low exposure to the oil patch and is enjoying growth in commercial banking.
Best Stocks to Buy on a Dip: Ford (F)
Ford Motor Company (F) has looked like a bargain play for some time now. True, monthly car sales are coming up against tough year-over-year comparison, but they’re still at record highs.
The market was spooked by the latest figures, but the damage was overdone and still hasn’t been fully repaired. Beyond that, cyclical risks have been more than baked into shares by skittish investors.
Ford changes hands at just 6.2 times forward earnings. That’s some dour sentiment right there, and yet the automaker has a long-term growth forecast of nearly 11% per annum. Ordinarily, a stock’s multiple trades at a premium to its growth prospects. When the situation is reversed, there’s a chance you’ve got a stock on sale.
The situation is even better when it’s like Ford’s, where you have a nearly 4.5% dividend to collect as well.
Best Stocks to Buy on a Dip: General Motors (GM)
General Motors Company (GM) is struggling with the same biases as Ford stock. And if F can’t catch a break, that goes double for GM.
Consider that Ford saw sales slip in May, but still beat analysts’ expectations by a wide margin. General Motors, for it’s part, posted a 3% gain in May sales when analysts were expecting a drop of 1%.
And like Ford, GM stock was overly discounted even before last week’s selloff on monthly sales figures. Shares are off 3% in the last five sessions, and 11% for the year-to-date.
General Motors has a forward price-to-earnings multiple of only 5.1 despite a growth forecast of 14% per annum. And it’s yielding even more than Ford at a full 5% at current pricings.
At some point, the negative sentiment should ease up.
Best Stocks to Buy on a Dip: Home Depot Inc (HD)
Home Depot Inc (HD) has been a bright spot in an otherwise lackluster retail sector. With fewer new homes on the market, owners are putting more money into sprucing up existing dwellings. That’s what’s driving better-than-expected earnings at the home improvement chain.
And yet despite this momentum, shares in Home Depot are a year-to-date market laggard by more than 4 percentage points. In the last five sessions alone, HD stock lost about 1.5%.
With a forward P/E of 18 on a long-term growth rate of 14, HD isn’t a screaming bargain-basement buy — but neither is it particularly expensive. The continued trend in home improvement — and a dearth of alternatives picks in the retail sector — suggests HD stock is a buy on the dip.
Best Stocks to Buy on a Dip: McDonald’s Corporation (MCD)
McDonald’s Corporation (MCD) rode all-day breakfast out of a serious and protracted slump, but now the market is starting to tire of the story.
Shares hit an all-time high in May, but it has been downhill ever since.
Indeed, MCD stock is off 6% over the last month. As a result, the forward P/E has come down from more than 24 to less than 20. That puts it much more in line with peers at a time when the chain is looking at making a revolutionary change.
McDonald’s is (among other things) testing a switch to never-frozen beef patties. Analysts say that would improve taste, cook times and customer service.
If MCD can follow all-day breakfast with a successful launch of fresh beef patties, the market will surely bite.
Best Stocks to Buy on a Dip: Nike Inc (NKE)
Nike Inc (NKE) was having a bad year before the selloff in shares accelerated recently. The stock is down 14% for the year-to-date, 8% in just the past month and 1% over the last five sessions. Although the company faces real challenges, this dip is overdone.
The liquidation of Sports Authority hurts Nike, sure, but not by much. Another concern is a loss of market share to competitors in a slowing marketplace.
Fair enough, but these anxieties forget about a key catalyst and a longer-term tailwind.
Nike stock traditionally does very well after the summer Olympics, and Rio is just around the bend. Furthermore, analysts might worry about third-party retail sales, but that ignores NKE’s tremendous and growing direct sales business.
Best Stocks to Buy on a Dip: Under Armour Inc (UA)
Under Armour Inc (UA) faces some of the same hurdles as Nike and, like its main competitor, shares are having a bad year. The stock has lost about 3% in the last month alone.
UA easily beat Wall Street estimates last quarter thanks to a 64% gain in footwear sales, which was driven by Curry. With the Golden State Warriors looking good for a second straight title, footwear should be a hero in the current quarter too.
At the same time, the valuation has dropped dramatically. Two months ago, UA’s trailing P/E was not far from 90. Today it’s a bit less than 70.
Under Armour stock has stumbled of late, but value buyers will be glad they picked up shares at these levels.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.