With the markets in the early stage of 2022, the stage seems set for some degree of uncertainty. The good news is that the pandemic might soon become endemic. This is likely to help in accelerating global economic recovery. The worrying news is that there is a case for at least four interest rate hikes in 2022. In these market conditions, it’s a good idea to hold some bear market stocks.
I would define bear market stocks as low-beta stocks that are relatively immune to economic or liquidity tightening. These stocks are good for capital preservation. When market sentiments are bullish, it makes sense to go overweight on high-beta stocks. However, in uncertain or bear market conditions, I would be overweight on low-beta stocks.
I must also mention that even with four interest rate hikes, real interest rates are likely to remain negative. Investors will therefore continue to pursue exposure to risky asset classes. While I am talking about bear market stocks, I believe that a big correction is unlikely.
However, profit taking in expensive stocks is a good idea and these profits can be parked in bear market stocks.
So, let’s looks at seven stocks that that also have a healthy dividend yield.
- Walmart (NYSE:WMT)
- AstraZeneca (NASDAQ:AZN)
- Newmont Mining (NYSE:NEM)
- JPMorgan Chase (NYSE:JPM)
- Starbucks (NASDAQ:SBUX)
- Equinor (NYSE:EQNR)
- Microsoft (NASDAQ:MSFT)
Bear Market Stocks to Buy: Walmart (WMT)
WMT stock is among the top picks in the list of bear market stocks. The first reason is a low-beta, which will ensure capital preservation even in a market correction. Further, WMT stock has a dividend yield of 1.53% and considering the company’s balance sheet, dividends are secure.
It’s also important to note that the U.S. is a consumption driven economy. A key part of consumption expenditure is retail spending. Even in a bear market, the company’s financial performance is likely to remain robust.
From a business perspective, Walmart has built omni-channel sales capabilities. This is one key factor that will ensure healthy comparable store sales growth. For Q3 2022, the company reported e-commerce sales growth of 8%. On a two-year stack basis, e-commerce sales growth was 87%.
International presence is another driver of long-term growth. While divestitures impacted international sales growth in Q3 2022, Walmart reported strong e-commerce growth in India, China and Mexico.
Walmart reported free cash flow of $7.7 billion for the first nine months of the current financial year. This gives the company ample flexibility for dividends and share repurchase. At the same time, the company can continue investing in high-growth international markets.
The pharmaceutical sector is another defensive sector to consider for bear market stocks. AZN stock is a quality pick with a five-year (monthly) beta of 0.19. Additionally, the stock has a dividend yield of 2.35%.
One reason to like AstraZeneca is the company’s healthy growth trajectory. For Q3 2021, revenue growth on a year-over-year basis was 28% to $25.4 billion. Excluding the impact of the vaccine, revenue growth was 17%. I believe that strong top-line growth is likely to sustain in the next few years.
One reason is the impact of the Covid-19 vaccine. With the Omicron variant, revenue is likely to be robust even for 2022. Additionally, there is a case for annual booster doses of the vaccine in the coming years.
Another reason to be bullish is the fact that the company has a deep pipeline of candidates. The current pipeline includes 175 projects in various stages. As more drugs are commercialized for different conditions, revenue growth will sustain. It’s also worth noting that the company is expanding its bio-pharmaceutical product presence in emerging markets with significant growth potential.
For the first nine months of 2021, AstraZeneca reported operating cash flow of $4.5 billion. This implies an annualized cash flow potential of $6.0 billion. Considering the product pipeline and global reach, it’s likely that cash flows will continue to swell in the coming years.
Overall, AZN stock is among the quality names to hold in a bear market. The stock is also worth considering for the core portfolio.
Bear Market Stocks to Buy: Newmont Mining (NEM)
NEM stock has been sideways for the last 12-months. The 3.39% dividend yield stock with a beta of 0.28 is worth considering among bear market stocks.
Investors will be wary of rate hikes in 2022 and its impact on gold price. However, there are two important points to note.
First and foremost, even with three or four rate hikes, real interest rates are likely to remain negative. Gold is therefore likely to remain firm at current levels.
Furthermore, in a possible bear market, investors will move funds away from risky asset classes to relatively low-risk asset classes. Gold is likely to witness fund inflow if there is a meaningful correction in equities.
These factors make NEM stock worth considering. Specific to the business, the company has a robust asset base (94 million oz. of gold reserves) and expects steady production through 2040. This provides clear cash flow visibility.
Important, Newmont expects the all-in-sustaining-cost to decline to $800 to $900 an ounce in the coming years. Even if gold trades in the range of $1,800 to $2,000 an ounce, EBITDA margin will remain robust.
For the first nine months of 2021, Newmont reported free cash flow of $1.8 billion. With an annual FCF potential of $2.5 billion, the company is positioned to increase dividends and pursue share repurchase.
JPMorgan Chase (JPM)
Banking stocks has been under-performers in the last 12-months. JPM stock has trended higher by 8% during this period. I believe that the 2.69% dividend yield stock is worth considering in a bear-market scenario.
One reason to be bullish on the banking sector in 2022 is the guidance for rate hikes. With interest rates remaining artificially low, the banks have witnessed growth primarily from non-core banking activities.
However, when interest rates trend higher, the cost of borrowing will increase for businesses and consumers. However, deposit rates are much slower to respond to rate hikes. The result will be a net interest income expansion for the banking sector.
Therefore, even if the broad markets trend lower, JPM stock might remain resilient. In particular, with the stock trading at an attractive forward price-to-earnings-ratio of 13.4.
For 2022, JPMorgan Chase set guidance for net-interest income of $50 billion as compared to $44.5 billion in 2021. A potential bear-market can impact trading or wealth management income. However, that’s likely to be offset by core banking business gains.
Overall, JPMorgan has a strong balance sheet and healthy cash flows. JPM stock seems positioned for a rally in 2022 and is worth holding in the portfolio.
Bear Market Stocks to Buy: Starbucks (SBUX)
SBUX is another low-beta stock that has been sideways in the last 12-months. The downside risk seems to be capped for this 2.02% dividend yield stock.
For Q4 2021, Starbucks reported revenue growth of 31% to $8.1 billion. For the same period, the company’s global comparable store sales increased by 17%. For the full year, global comparable stores sales increased by 20%. Considering the growth momentum, the stock seems to be attractively valued.
It’s also worth noting that Starbucks opened 538 new stores in Q4 2021. The rate of store opening has been robust. Further, stores in U.S. and China comprised 62% of the overall portfolio. However, in the coming years, it’s likely that Starbucks will be more diversified. There is significant untapped potential in countries like India.
Starbucks is also well positioned from a financial perspective. As of Q4 2021, the company reported $6.5 billion in cash and equivalents. Additionally, for the last financial year, operating cash flows were $5.9 billion.
Financial flexibility will ensure that store openings remain robust through 2022. On the flip-side, inflation is a concern as it might impact operating margins. However, it seems that the inflation factor is discounted in the stock price.
In general, oil and gas stocks have a high-beta. However, there are exceptions and EQNR stock is among the quality names with a low-beta. A key reason for low stock volatility is a strong balance sheet and low break-even assets.
With Brent trending higher, EQNR stock has seen bullish momentum with an upside of 45% in 12-months. However, at a forward P/E of less than 10, the stock looks attractive. EQNR stock also comes with an attractive dividend yield of 2.48%.
In the next few years, the company’s Johan Sverdrup asset is likely to be a cash flow machine. The asset has a full-field break-even of $15 per barrel.
Even besides this asset, Equinor is positioned to deliver healthy cash flows. Between 2021 and 2026, the company expects free cash flow of $45 billion. With Brent trading near $80 per barrel, the FCF visibility is higher than guided.
Another reason to like Equinor is the big push towards renewable energy. Over the next five-years, the company expects to invest $23 billion in renewable assets.
It’s also worth noting that as of Q3 2021, Equinor reported net-debt ratio of 13.2%. A strong balance sheet and robust cash flows allow ample scope for dividend upside. In addition, Equinor has been aggressive on the share repurchase front.
Overall, EQNR stock is a quality stock to hold in a possible bear market. Furthermore, the stock is also worth considering for the long-term.
Bear Market Stocks to Buy: Microsoft (MSFT)
MSFT stock is another name to consider among bear market stocks. The stock has delivered healthy upside of 40% in the last 12-months. Even with a relatively unattractive dividend yield of 0.82%, the low-beta stock is worth adding to the portfolio.
Recently, investment firm Bernstein opined that Microsoft is likely to be among the big winners in the metaverse space. Bernstein has a price target of $364 for the stock. This would imply an upside potential of 19% from current levels of $306.
Microsoft has also been reporting strong quarterly numbers. For Q1 2022, the company’s revenue increased by 22% to $45.3 billion. The cloud business remains a key growth driver. For the last quarter, cloud revenue was higher by 36% to $20.7 billion.
It’s also worth noting that for Q1 2022, Microsoft reported cash flow of $19.1 billion. With an annualized cash flow potential of $80 billion, the business is a cash flow machine. This also allows Microsoft to invest in emerging technologies through the organic and inorganic route.
Overall, MSFT stock is likely to remain resilient in a broad market correction scenario. The stock is also worth holding for the medium to long-term as the metaverse trend continues to grow.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.