After delivering one of the best months in history, the stock market has started May on a sour note. If you believe the dip is only temporary, then there are plenty of quality stocks to buy at bargain prices. However, if this is the beginning of a longer-term bear market, it could pay to be a bit cautious.
The first step in investing in a bear market such as this one is to keep some powder dry. As Professor and Chair of the John E. Walker Department of Economics at Clemson University Scott L. Baier pointed out, the economic recovery is dependent on several unknowns.
“The keys to the market in Q2 will depend on the progress that is made in our ability to respond to the health threats posed by COVID-19. If [we] are successful at flattening the curve and if state and federal governments have succeeded in making progress the market should begin to bounce back. Similarly, if the fiscal and monetary policies are able to provide support for business to remain open and retain their employees, the market is likely to bounce back in Q2.”
Indeed, Q2 is make-or-break for the stock market. It will set the stage for a longer-term recovery through the end of the year. But if reopening the U.S. economy leads to a resurgence in the novel coronavirus, it would signal more pain ahead.
With that in mind, the best stocks to buy now are those that will benefit from an economic recovery, but can also perform in a bear market. Three stocks in particular fit this bill in my mind:
Let’s take a deeper look at what makes each stand out stocks to buy among their broader market peers.
Stocks to Buy: CVS Health (CVS)
Healthcare is a great place to start looking for stocks to buy in a bear market because demand for these services doesn’t depend on the economy. I like CVS stock in particular because I think it has a lot of long-term potential.
CVS is best known for its retail pharmacy chains, but the firm has been shifting its business model to become a one-stop-shop for all things healthcare-related. The benefits of its merger with Aetna are only just starting to come to fruition, and with coronavirus still fresh in Americans’ minds, getting insured will be much more of a priority.
Plus, CVS’ HealthHub clinics make for an interesting growth driver in the years to come. The clinics offer an alternative to visiting a GP, and it’s likely that Aetna will steer their customers to use that service. That should increase foot traffic and in-turn sales at CVS retail locations.
All in all, CVS stock looks like one of the best picks in the healthcare space as the benefits of its Aetna acquisition start to materialize.
Dominion Energy (D)
Another good place to look for winning stocks to buy during a bear market is utilities. Of course, no business is immune to an economic downturn, but Dominion Energy, with its impressive dividend yield and relatively insulated business makes for a good choice.
In fact, D stock offers investors a 4.87% dividend yield, which looks relatively safe considering the firm has been raising its dividend every year for the past 17. This year, amid the coronavirus fallout, investors might not want to count on much of an increase — or any increase at all — but the current payout looks likely to continue.
That’s because a huge chunk of Dominion’s income comes from state-regulated utilities. That translates to predictable, stable cashflows that management can rely on.
Dominion is also committed to growing its clean energy portfolio, with plans to reduce its carbon and methane emissions to zero by 2050. The firm has big bets in both solar and wind power, the latter of which is due to start bearing fruit in 2024.
It can be argued that 3M is overhyped because of its exposure during the coronavirus outbreak. The firm’s masks and other medical supplies have become a hot commodity, which helped boost the firm’s sales in the first quarter.
But even after the Covid-19 crisis has passed, MMM stock is a solid holding. That’s because while 3M’s products are especially useful in this scenario, even during a non-healthcare crisis, 3M’s products will always be in demand. The company makes upwards of 60,000 different products spanning a wide variety of industries.
What’s more, MMM stock’s 3.87% dividend yield offers a cushion for investors during the bear market. Like Dominion, 3M’s management has been committed to raising dividend payments. 3M, though, is in the upper echelon of dividend aristocrats. It’s one of only nine companies that has been increasing its dividend for at least 50 years. That makes it one of the best dividend stocks to buy in an uncertain environment.
Laura Hoy has a Finance degree from Duquesne University and has been writing about financial markets for the past 8 years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, she did not hold a position in any of the aforementioned securities.