3 Stocks to Buy if the S&P 500 Retraces Its Gains to October Lows

  • Even though we’re in the middle of a big bull market, buying stocks for a market downturn to come is a smart investment strategy.
  • Diamondback Energy (FANG): The Permian Basin oil and gas stock is one of the biggest producers in the region.
  • Altria (MO): Tobacco still throws off a lot of cash profits and the biggest cigarette maker offers a juicy dividend yield to boot.
  • HP (HPQ): The proliferation of AI PCs is reigniting hopes for a new PC upgrade cycle for the biggest PC vendor.
Stocks for a Market Downturn - 3 Stocks to Buy if the S&P 500 Retraces Its Gains to October Lows

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The S&P 500 is booming. The popular benchmark index is up 16% this year and is 44% higher since the start of 2023. After losing over a fifth of its value the year before, our roaring bull market shows little sign of letting up.

But a crash will come. Last October, the index hinted at this possibility when it dipped 8% and looked to be heading for a correction, which is a drop of 10% or more. Although it reversed course and marched higher again, the S&P 500 falling back to October’s 4,230 level would be a decline of 24%. That’s well into bear market territory and still a distinct possibility.

Corrections and crashes are all a part of investing. It’s why you should always keep some powder dry to swoop in and pick up some bargains. It also underscores why buying stocks for a market downturn to protect your portfolio is essential.

Dividend stocks are the perfect hedge against a bear market. Dividend payers have outperformed all other classes of stock for nearly 100 years. Their income offsets declining share prices and juices your portfolio’s returns. It’s why there has never been a decade since the 1920s where S&P dividend stocks have generated negative returns.

The three stocks below will protect your investments if the index hits those October lows again.

Diamondback Energy (FANG)

A photo showing a neon green and black snack baring its fangs.
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Oil and gas driller Diamondback Energy (NASDAQ:FANG) is the biggest pureplay stock in the Permian Basin. That’s important because the region is one of the most prolific fields in the world, and it is how the U.S. became one of the dominant global producers.

Diamondback is acquiring privately held Endeavor Energy Partners in a $26 billion deal. Once completed, the oil and gas stock will become the third-largest Permian energy stock behind Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX). The deal is expected to close in the fourth quarter.

Diamondback’s position in the Permian Basin is significant because the strong demand tailwinds push fossil fuels forward. It is a low-cost producer whose dividend is protected down to oil trading at $40 a barrel. West Texas Intermediate (WTI) is priced at over $86 a barrel today and the dividend yields an attractive 4.1% annually.

Although Diamondback Energy stock is up 36% in 2024 and trades 62% higher over the past year, shares go for 11 times earnings and estimates and a deeply discounted 11 times free cash flow (FCF).

Altria (MO)

Altria office sign in Virginia capital city tobacco business closeup by road street
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Tobacco stock Altria (NYSE:MO) is the second stock to buy during a market downturn. The owner of the Marlboro brand of cigarettes, Altria is investing heavily in reduced-risk products, including electronic cigarettes, nicotine pouches, and chewing tobacco. 

Revenue in the oral tobacco category rose 3.7% last quarter to $651 million, primarily due to a 32% increase in shipment volume of its own! Brand of nicotine pouches. Altria’s NJOY e-cigs shipped 10.9 million units of consumable products, down slightly from 11.1 million units the previous quarter. Yet its market share grew to 4.3%. Although that is far behind industry leader Vuse from British American Tobacco (NYSE:BTI) at 38.5%, Altria only closed on the acquisition a year ago. 

The tobacco company still makes most of its money from cigarettes, or some $4.1 billion in first-quarter revenue. Marlboro remains the dominant brand with an overall market share of 42% and a premium brand share north of 59%. Even though smoking is in a secular decline, Altria remains quite profitable in supporting its dividend, which yields 8.8% annually.

It has paid a dividend for 54 years and increased it yearly, making Altria a Dividend King.

HP (HPQ)

Image of the HP logo on a mesh computer case
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HP, a PC and printer stock (NYSE:HPQ), has been a value trap for most of the time. Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A, BRK-B) has owned the stock. Yet there is now renewed interest in the company due to the proliferation of artificial intelligence.

AI PCs are beginning to hit the market, which is forecast to grow again after years of contraction. Shipments rose 5% in the first quarter, according to Canalys and HP edged out Dell (NYSE:DELL) as the biggest vendor with a 24.6% share.

Earlier this year, HP touted the release of what it said was the industry’s largest portfolio of AI PCs. They feature the leading next-generation AI processors from Intel (NASDAQ:INTC) and Advance Micro Devices (NASDAQ:AMD). HP is already tracking higher with a mix of PCs for consumers and enterprise workstations.

HPQ stock is up 16% this year yet trades at 12 times trailing earnings, nine times next year’s estimates and at just a fraction of its sales. Also sporting a deeply discounted 11x FCF, HP is a bargain-basement stock with a dividend yielding 3.2% annually.

On the date of publication, Rich Duprey held a LONG position in MO, XOM and CVX stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.


Article printed from InvestorPlace Media, https://investorplace.com/2024/07/3-stocks-to-buy-if-the-sp-500-retraces-its-gains-to-october-lows/.

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