It wouldn’t be an entirely unreasonable move to anticipate a bear market in the near future. After all, at some point the current bull market has to cool. The S&P 500 Index is up about 20% year-to-date, and has risen 32% in the past year. With that growth, it’s difficult to anticipate that a bear market will emerge immediately. But it also begs the question on whether you should play the contrarian with bear market stocks to buy.
The economy is undergoing a sustained rebound. That bodes well for the broader economic picture.
Yet, at the same time, the economy is dealing with unpredictable extraneous factors that could be characterized as once-in-a-lifetime occurrences. I’m referring to the delta variant of the coronavirus as well as other strains.
It isn’t hyperbolic to state that those catalysts could put a damper on that sustained market growth that I just mentioned. In the worst case it could lead to the economy plunging into bear territory. That seems unlikely, but it does make such an occurrence worth considering.
If a bear market does reemerge, those who prepared early will be in the best position. These stocks are strong performers in such economies.
- Berkshire Hathaway (NYSE:BRK.A, BRK.B)
- Amazon (NASDAQ:AMZN)
- Johnson & Johnson (NYSE:JNJ)
- Moderna (NASDAQ:MRNA)
- Zoetis (NYSE:ZTS)
- Lockheed Martin (NYSE:LMT)
- McDonald’s (NYSE:MCD)
Stocks to Buy in a Bear Market: Berkshire Hathaway (BRK.A, BRK.B)
A good rule of thumb to follow is to seek value in bear markets. If that sentiment holds true, then who better to follow than Warren Buffett? He is the world’s most recognizable investor after all. And he learned from one of the scions of value investing in Benjamin Graham.
He took that knowledge and built Berkshire Hathaway into a company that today commands a market capitalization of $640 billion. Today Berkshire Hathaway encompasses subsidiary businesses in insurance, utilities, energy, railroad freight, manufacturing, and others. The common thread here is that these businesses operate in traditional, easy to understand industries.
BRK.B stock has already shown that it can weather the worst bear markets can offer. It has rebounded out of the pandemic doldrums moving from $170 per share to about $290 currently. Equally importantly, it didn’t decline as much as many other stocks at the pandemic’s onset. BRK.B shares lost about a quarter of their value in March of 2020.
It has basically marched upward over the last decade, only pausing briefly in 2020. In fact, ten year returns on BRK.B shares sit around 300%. That track record indicates that it’s difficult to bet against the stock in any market, bear or bull.
I believe there are two big reasons to purchase Amazon right now. One, in the context of bear markets, Amazon is in prime position. Two, the earnings miss in late July is simply a great opportunity.
Let’s start with the bear market narrative underlying this article. I recommend buying Amazon for the next bear market because if that market happens soon, it’ll occur because of the delta variant.
What do we know about the performance of Amazon stock during this pandemic? Well, we know that it basically seized the golden opportunity and that share prices have doubled from the beginning of the pandemic to today. So we can conclude that it is a bear market stud. If further lockdowns happen, Amazon is a ship to be aboard. It’s that simple.
My second assertion is that Amazon’s so-called earnings miss was little more than a hiccup. Yes, Amazon recorded $113.1 billion in revenues in Q2, less than the $115.4 billion target analysts were aiming for. And as a result AMZN stock prices dropped from $3,600 to nearly $3,300.
In any case, Amazon’s Q2 revenues were $89 billion in the second quarter of 2020. Remember, they hit $113.1 billion in Q2 this year. That’s hardly indicative of trouble.
The other specter hanging over Amazon is the looming threat of government intervention. Is that truly worrisome? There’s plenty of reason to believe that Amazon, split into its constituent pieces, would perform even better. The e-commerce and cloud platforms are top performers in their own right. Further, that doesn’t look like an impending threat in any case.
Stocks to Buy in a Bear Market: Johnson & Johnson (JNJ)
Do a minimal amount of research on defensive stocks, bear market stocks, or any other similar themes, and Johnson & Johnson is bound to pop up. Its track record shows that it has exactly what stock investors seek in uncertain times: Dependability.
The dependability I’m referring to here of course relates to steadiness of price. JNJ stock required all of a month to retrace 100% of the losses Covid-19 inflicted in March of 2020. By April 22, 2020 share prices were above pre-collapse prices. That serves as a powerful testament to the idea that Johnson & Johnson is a strong defensive stock.
Remember, that rebound occurred long before Johnson & Johnson’s vaccine. The company’s pharma subsidiary, Janssen, had its vaccine approved by the FDA much later, on Feb. 27 of this year.
The company’s most recent earnings report points to strong growth and reason for optimism through 2021. Revenue increased 27.1%, hitting $23.3 billion in the second quarter. Earnings per share increased by a whopping 72.8% in the quarter as well. Both achievements led the company to increase its 2021 full year guidance for those figures for the full year of 2021.
I explained that JNJ share prices are very reliable earlier. That’s attractive in its own right . But the company’s dividend serves as a further bulwark against volatility. It hasn’t reduced its dividend since 1982 and investors can reliably anticipate at least $4.24 in dividends this year per share.
Let’s reestablish one idea here. The most salient catalyst that could plunge the stock market into bear territory is the delta variant. Almost nobody wants that to happen. But in the case that something catastrophic occurs, Moderna stock is a strong bet.
Of course it is one of three FDA approved vaccines against Covid-19. If things get worse, then vaccine hesitancy may wane. In that case, Moderna could reliably expect greater revenues.
The company released better than expected earnings on Aug. 5. The firm exceeded EPS expectations of $6.04, hitting $6.46 per share. Revenues hit $4.4 billion, ahead of the $4.28 billion Wall Street was predicting. And on top of that, the company announced that it intends to buy back $1 billion of stock in the next two years.
Normally such numbers would send a stock’s price moving upward. But Moderna isn’t a run of the mill stock in most regards. Investors took profits off the table and prices dipped slightly.
But Moderna isn’t going anywhere. The $20 billion it anticipates in 2021 revenues could be equaled again in 2022.
Stocks to Buy in a Bear Market: Zoetis (ZTS)
There are two good reasons to consider Zoetis stock in preparation for a bear market. One reason is that it is a defensive stock with consistent demand for its products. The other is that it has been performing well as of late.
Zoetis develops and commercializes animal medicines and vaccines. The company is not strictly a pet company and serves the livestock industry as well. The important idea to note here is that health care is one of the areas of spending that declines last. It isn’t immune to spending decreases, but consumers tend to prioritize it, making it a strong defensive category. The same holds true for spending on pet and livestock health care.
Zoetis happens to be a highly rated veterinary health care stock with strong analyst sentiment.
So, it will probably perform well in any market. Not only that, but the animal health market is forecast for continued growth. Grand View Research predicts that the $45.4 billion 2020 market will balloon to nearly $89 billion by 2028.
Recent earnings show that Zoetis is strong as well. It posted a 24% increase in income in the first half of 2021 year-over-year. Net income increased 34% in the same period. That points to strengthening operational efficiency.
Lockheed Martin (LMT)
Lockheed Martin is a great bear market, defensive stock to consider. The defense and aerospace giant bears a quarterly dividend of $2.60. On an annualized basis that means it should provide investors about $10.40 in dividends throughout 2021. That equates to a relatively modest 2.87% yield, but it is steady nonetheless. That dividend decreases price volatility in any case.
That’s not to say that LMT stock is inherently risky. It carries a beta of 0.98, which indicates that it is less risky than an average stock. A beta of 1 indicates that a stock would move with the market. Lockheed Martin’s 0.98 beta suggests that its stock would move downward slower than the rest of the market.
Lockheed Martin is performing steadily from a financial perspective. Revenues in the second quarter increased by 4.99%, hitting $17.029 billion. And through the first half of the year, revenues were up a very similar 4.44%, hitting $33.287 billion.
Stocks to Buy in a Bear Market: McDonald’s (MCD)
McDonald’s, as a company and a stock, has proven its ability to weather the toughest bear market of a generation. It is far from being the sexiest company. And its food has arguably fallen out of fashion to a degree. But you really can’t argue with its performance.
In the second quarter of 2021, McDonald’s reported that global sales had increased by 40.5% on a year-over-year basis. The skeptical investor might rightly point out that the pandemic was largely responsible for such growth. And that’s true, it certainly contributed to a large degree.
However, the same earnings release also points to a longer term growth trend for the company. Global sales were up 6.9% in Q2 ‘21 over Q2 ‘19. That’s hardly a weak showing, especially given McDonald’s size and established presence.
The other reason investors look to McDonald’s stock in bear markets is its ultra-reliable dividend. It hasn’t been reduced since 1977, and currently pays $1.29 on a quarterly basis. Another modest yield, but big enough to buy a McChicken each and every quarter.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.