Bearish stock market conditions are creating extreme fear for investors. Many investors who are low on cash and highly exposed to stocks feel demoralized by the falling prices. To regain control, investors need to differentiate between companies that will recover in the long term and those that will not. The stocks to buy and hold are those where the company is financially sound. In addition, financially sound businesses will have manageable debt.
They are also typically companies that did not list on public markets within the last two years. Those more newly public companies likely sold their stock at unsustainable valuations.
In the table at right, you can see the strong quality scores from many of my picks for this gallery. Stock Rover defines value using metrics like price-to-earnings and price-to-sales.
Investors should avoid companies that sold stock to pay bills or that reward management with excess stock-based compensation. In contrast, the stocks to buy and hold are companies that have steady or improving fundamentals. Markets will reward them by sending their price higher.
Long-term investors in a bear market cannot time a stock’s recovery, which is why finding solid stocks to buy and hold is so important. But to reduce risks, investors should begin with a starter position in a stock. Increase the position every quarter if the company posts good results. Companies that posted unexpectedly weak results are not automatically stocks to avoid though. You can give them another quarter to prove themselves.
Broadcom will benefit from surplus enterprise IT spending. For example, if corporations need to compute services, they may buy the company’s SAN or MegaRAID storage connectivity solutions.
Video content in social media is another positive catalyst for Broadcom. Cloud customers are adopting its nearline hard disk drives to store data. Sales for storage hardware grew by over 20% compounded annually in the last five years. Strong demand for networking in server storage is increasing average selling prices, as Broadcom is passing along higher material costs related to wafer and substrate production. In 2023 and 2024, the company expects the strong demand to continue.
Some companies may be unable to pass higher costs to customers, but Broadcom and and will raise prices if needed, which is great for investors. Strong profit margins will also support AVGO stock from here.
Chubb (NYSE:CB), an insurance and reinsurance company, posted net premium earnings of $8.75 billion in the last quarter, up by 6.4% Y/Y. It earned $3.82 a share (non-GAAP). When interest rates rise, Chubb’s return on equity also increases.
Chubb has the flexibility to adjust its rates as competitive pressures change. For example, it adjusted its rates depending on the underwriting conditions. In addition, it reviews the adequacy of its rate and the exposure to inflation. Different sectors require different responses.
Chubb has a geographically diversified business. In Asia, it expects plenty of growth to take place in the next two decades. The company is increasing its presence to capitalize on opportunities in the region. It also has growing exposure to Latin America, though Chubb is cautious in expanding in the region due to its volatility.
The company’s loss ratio improved in the commercial segment, which is a positive development, and it benefited from a resilient portfolio. With a strong balance sheet, Chubb is in financially strong shape to consider merger and acquisition opportunities.
Cisco Systems (CSCO)
Cisco Systems (NASDAQ:CSCO) shares fell after the company posted weak quarterly results. It lost around 2% of orders from de-booking orders from Russia. Conversely, its enterprise business grew by 37%. When it realizes revenue from its large customers, Cisco might post better results in future quarters.
Chairman and CEO Chuck Robbins said in the earnings call that Cisco has no demand issues. It lowered its outlook because of a $200 million impact from Russia. In addition, the lockdown in Shanghai, China disrupted its supply chain. When supply returns, Cisco will receive the needed components to finish its products and complete the sales.
In the last quarter, Cisco had strong pricing to offset lower sales. CFO Scott Herren said, “our pricing was up about 160 basis points in Q3.” In other words, customers are willing to pay more for Cisco’s products.
Looking ahead, the component supply constraints will ease. The company may have excluded some of the sales rebound in its guidance. It also ended the quarter with over $15 billion in the product backlog. $2 billion of the backlog is in software, a higher-margin product.
Cisco will likely post better revenue and margins in the upcoming quarter as those headwinds fade.
Conagra Brands (CAG)
Conagra Brands (NYSE:CAG) disappointed investors when it cut its profit guidance, citing inflation pressures. It posted revenue growth of 5.1% Y/Y to $2.91 billion. In the fourth quarter, it expects net sales to grow by 7% and earn 64 cents a share.
In the fiscal 2022 year, Conagra expects an operating margin of around 14.5%. It previously guided 15.5%, but the slight decline should not be big enough to worry investors. Importantly, the company hedged 80% of its materials for the fourth quarter and 40% overall for fiscal 2023, reducing volatility.
Investors may wait for inflationary pressures to ease. Conagra may pass some of the higher costs to customers, and will rely on its strong brand to sustain demand strength.
For example, three of its largest brands — Healthy Choice, Birds Eye and Slim Jim — increased market share and posted double-digit growth in the past quarter, despite price increases.
Merck & Co (MRK)
In the drug manufacturing sector, Merck (NYSE:MRK) has business plan that involves seeking buyout candidates. It is looking for solid biotech companies that have a potentially strong pipeline.
And it’s not just about medicine for people. In the animal health business, Merck is also fostering its long-term value. It will grow the business before considering a spinoff.
Merck’s blockbuster drug Keytruda has multiple indicators. It continues to expect growth for the drug in treating renal cell carcinoma. Initially, Merck expected 50% of its growth to come from adjuvant therapy. That is 30% of the U.S. business. It now expects this will represent one-quarter of its global business in the year 2025.
Merck’s Covid antiviral pill, molnupiravir, will also become a first-line defense in treating infected patients. Merck reported utilization by 500,000 patients around the world and had shipped 6.4 million courses at the end of the last quarter. As Covid reaches an endemic phase, the healthcare industry will rely on this pill to treat more patients.
Prudential Financial (PRU)
Prudential (NYSE:PRU) earned $3.17 per common share in the last quarter which was down from $3.99 last year but still strong. Its investors withdrew $4.3 billion in the quarter due to a challenging quarter for fixed-income mutual fund demand. On the other hand, Prudential saw $300 million more in inflows into real estate and public fixed income.
Looking at a wider timeframe, Prudential added $55 billion in inflows between 2017 and 2021. The outlook is normal when the stock markets are weakening.
To get ahead of the tightening credit market, it issued $1 billion in hybrid debt before interest rates started rising. The added liquidity will give Prudential more room to manage its cash flow. For example, it made a capital contribution to its new reinsurance subsidiary. The extra capital will give the unit higher capital efficiency under tougher market conditions.
Prudential has a strong balance sheet and could also pursue M&A if the opportunity arises.
Qualcomm (NASDAQ:QCOM) is the leader in smartphone chips. It recently announced the release of the Snapdragon 8 Gen 1 mobile platform. The platform will support high-speed 5G on devices with 10 Gbps speeds. The system also offers what it calls “all-day power.” When you add in Wi-Fi 6 and 6E support, its newest chip will refresh its product portfolio and lead to higher sales.
In the last quarter, Qualcomm posted revenue growing by 41.1% to $11.2 billion, and it earned $3.21 a share on a non-GAAP measure. In the third quarter, it expects revenue of up to $11.3 billion and non-GAAP EPS in the range of $2.75 to $2.95.
Markets are both fickle and forgetful. Qualcomm posted its guidance at the end of April, tet markets dumped the stock alongside other high-flying technology stocks. Should market sentiment turn positive, investors will snap this bargain stock in droves.
Late last year, Qualcomm announced a $10 billion stock buyback. QCOM stock declines should benefit the company as it buys the stock at discount prices.
On the date of publication, Chris Lau 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.