In between the bear market are mini stock rallies that look promising. On those days, stocks light up green with positive short-term gains. Those brief returns will not offset the total return for investors who bought at the peak.
Investors are better off ignoring the brief volatility. Instead, look at stocks to buy and hold. Stocks that fit this strategy have favorable valuations and a healthy business model. They could have disappointed investors with near-term warnings. However, the economic slowdown only is only temporary for the business.
Investors have a chance to build a position in beaten-up companies trading at a discount. When the business cycle returns to growth, shareholders will enjoy the ride higher. Among the stocks picked are technology, automotive, and industrial firms.
Investors should pick a variety of companies from different industries. The more diverse the portfolio, the lower the overall risk.
Data courtesy of Stock Rover
In the above chart from data supplied by Stock Rover, the quantitative scores vary in quality. Toyota has a weak score for now, due to supply constraints limiting its revenue potential.
Cisco Systems has a high-quality score and good value. That did not stop markets from selling shares after Cisco posted a weaker outlook.
Below are seven stocks to buy and hold in these bear markets:
Stocks to Buy and Hold: BorgWarner (BWA)
BorgWarner (NYSE:BWA) is a multinational automotive supplier based in Michigan. In the first quarter, it posted its first OEM business win. It will supply battery management system technology for commercial vehicles. This supply work will start in 2023.
BWA stock has inflationary pressures to overcome. For example, commodity costs will add $50 million to $60 million in expenses. It will manage the pressures by cutting production. Although revenue will fall, growth will accelerate. This will more than offset the impact of lower production.
China’s Covid-19 related lockdown and the Russia-Ukraine conflict disrupted certain buyers. BorgWarner did not chase their business. It will not hut its positive cash flow business. Instead, it will wait for the weak market environment will play out. In addition, it will adjust its business for long-term revenue expansion.
The company will share the higher costs with customers. This is a safer approach than taking aggressive merger deals. Investors have less risk holding BWA stock focused on returning value.
Cisco Systems (CSCO)
Cisco Systems (NASDAQ:CSCO) warned investors that the war and lockdowns in China will hurt its current quarter. Beyond that, it expects it will meet its full-year earnings per share outlook.
Business transformation continues. Customer demand is strong for the full year. Once the lockdown ends, investors should expect shipping activity at ports in Los Angeles and China to thrive. Cisco’s customers will get the components they need to finish their product. They will order Cisco’s router, wireless, and mass-scale infrastructure solutions.
Cisco’s software segment has potential margin expansion opportunities. For example, Cisco had over $2 billion in software backlog. It could not realize sales until the software, connected to unavailable hardware, ships out.
Cisco also needed to write down software orders related to closing its operations in Russia. Markets sold CSCO stock to account for the one-time cost. In future quarters, its business will normalize. The stock will recover to re-adjust for the improving prospects.
Skyworks Solutions (SWKS)
Skyworks Solutions (NASDAQ:SWKS) benefited from strong demand from a large customer. Strong performance at Samsung also helped its last quarterly performance. In addition, the ramp in Google Pixel 6 smartphone is a positive catalyst for Skyworks.
Skyworks reported revenue from its large customer accounted for 54% of total revenue. While it demonstrated strong demand, it is also a risk. Despite relying on one customer, others need its components. For example, it has a filtering technology that its customers need.
The supply chain disruption hurt its revenue for the quarter. In the next few quarters, Skyworks has a product road map to sustain its design win momentum. It also has the scale from its manufacturing assets to support its product launches. Investors should expect Skyworks to report better growth in the second half of the year.
The macroeconomic headwinds are a risk to the company’s strong outlook. Still, the stock’s decline in the last few months prices in pandemic-related issues and geopolitical risks.
Thor Industries (THO)
Thor Industries (NYSE:THO) is the world’s largest manufacturer of recreational vehicles. The company simplified its business by selling its majority interest in its TH2Connected digital application business. Markets barely reacted to the positive development.
Thor sold the platform to focus on other capital and strategic initiatives. The sale of TH2Connect, which operates as Roadpass Digital, will give the company $81 million. The stock is in a downtrend because investors worry about its long-term prospects.
However, the company’s North American shipments in the first quarter of rose by 44.6%. Gross profit margins increased, driven by better overhead cost management, favorable freight costs, and improved labor.
Markets are forward-pricing machines. It likely anticipated higher material and labor costs would hurt Thor’s profit margins. Consumer confidence is likely heading lower. For example, giant retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT) posted lower profits. Inflation hurt results. Both firms will start passing higher costs to consumers. Thor is among many consumer goods firms that face the same dilemma.
Stocks to Buy and Hold: Toyota Motor (TM)
Toyota Motor (NYSE:TM) is a top supplier of high-quality, reliable automobiles. Unlike its American counterparts, the Japanese firm is not betting its future on electric vehicles. Instead, it entered the hybrid vehicle market first. More recently, it launched a battery-electric SUV with the Toyota bZ4X.
Toyota’s near-term headwinds are out of its control. It said it would cut its production plan for June to an 800,000 vehicle target. Toyota cited the Covid-19 lockdown in Shanghai as the reason for the lower target. It previously targeted output of 850,000.
For the year, the firm still expects to produce 9.7 million vehicles globally. Without the disruption in Shanghai, Toyota had a good historical record of securing its computer component chips. It has a cordial relationship with suppliers. The disruption suggests that other automotive firms will suffer more.
Investors should bet on TM stock rebounding first when the supply chain issues resolve. The stock pays a dividend of $4.41 per share.
Universal Display (OLED)
Universal Display (NASDAQ:OLED) supplies organic light-emitting diode technologies. Customers have plans to increase OLED production in the year ahead. This benefits OLED stock. It has a new capacity coming online. Its Gen 8.5 and Gen 8.6 have only 2% market penetration.
Universal enjoys high gross margins. It targeted a 65% to 70% material gross margin for 2022. Despite higher raw material pricing adding to its cost of goods sold, the company is steadfast in sustaining margins. In addition, supply chain disruption is also a challenge for the industry.
Fortunately, the company’s customers are not experiencing any component shortages. As a result, Universal Display is keeping its revenue guidance of $625 million to $650 million.
In 2024, OLED stock should get a lift as it launches and commercializes blue emitter OLED.
In the television market, Universal Display is focusing on large-area televisions and 8K displays. This market opportunity will extend outside of OLED televisions. After the stock fell, markets are not pricing the value this market will bring to the company.
Stocks to Buy and Hold: Vale (VALE)
Vale (NYSE:VALE), based in Brazil, signed a long-term deal to supply Tesla (NASDAQ:TSLA) with nickel. It aims to supply 30% to 40% of its class 1 nickel sales to the electric vehicle industry. Investors wary of buying expensive EV stocks may buy the metal supplier instead.
The deal is a win-win for both firms. Tesla needs to secure supply deals to outflank the competition. Such favorable deals will lower its input costs while other EV firms pay more.
In its first quarter, Vale said that it would create a better company in three steps. It will de-risk projects, focus on its core business, and create and share value with shareholders. It already posted a pro-forma EBITDA of $6.37 billion. In Q1, it distributed $3.5 billion through dividends and a $1.8 billion share buyback.
Vale is a stock to hold forever. Last year, it returned 95% of free cash flow. Five years from now, it wants to keep its dividend commitment. Investors seeking income should invest in VALE stock for the long term.
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.