With so much turmoil in the equities sector, one might feel tempted to turn and go, rather than focus on so-called bear market stocks to buy on the dip. Others could see a contrarian opportunity amid the red ink, but only for previously popular names, particularly trades with “meme-ish” qualities. While not discouraging any particular thesis, aiming for discounted resilience could pay dividends (sometimes literally).
Let’s clarify definitions first. By bear market stocks to buy, I’m referring to companies that feature business models that are either relevant to the current post-pandemic backdrop or enjoy a long-term track record of stability and dependability. And by dips, I’m talking about companies that meet the aforementioned criteria but have been cheapened; in this case, securities that are down on a year-to-date basis through the close of July 8.
To be fair, bear market stocks to buy aren’t always the most exciting companies. On this list, I have discount retailers, confectionary specialists and insurance firms, to name a few. However, they’re likely to weather a possible recessionary storm because their underlying businesses are incredibly pertinent.
|KDP||Keurig Dr Pepper||$36.07|
|KTOS||Kratos Defense & Security Solutions||$12.88|
|ESS||Essex Property Trust||$259.85|
Keurig Dr Pepper (KDP)
When economic conditions are improving — or at least stabilizing at a relatively high threshold — worker bees often rush off to their favorite barista to get their caffeine fix. Frankly, it makes the drudgery of doing work at the office somewhat more tolerable.
In fact, a body of research demonstrates that “75mg of caffeine (the equivalent of one cup of coffee) every four hours can result in a pattern of sustained improvement of mood over the day.” Moreover, additional research “found that coffee aroma may enhance working memory and stimulate alertness.”
However, if a recession were to break out, those barista trips will likely come to an end. But that doesn’t mean people will go cold turkey. No, instead they’ll turn to grocery fare and at-home solutions, bolstering the bullish narrative for Keurig Dr Pepper (NASDAQ:KDP).
Both a popular coffee and soft drink brand, Keurig Dr Pepper could end up being one of the best bear market stocks to buy on the dip (it’s down 1.4% year-to-date) for giving consumers their pick-me-up but at a cheaper price.
On a similar note to Keurig Dr Pepper, confection specialist Mondelez (NASDAQ:MDLZ) benefits from the “cheap thrills” thesis. Under ordinary circumstances, people will go out to various events — movies, nightclubs, cultural gatherings — to have fun. However, when a recession hits, households look for various ways to save money.
As one of the world’s top snacks companies, Mondelez’s underlying business provides a two-fer, making it one of the most intriguing bear market stocks to buy on the dip. First, many of its products are cheap decadent delights, providing a form of escapism. Second, while Mondelez snacks are just that, snacks, they also double up as food products.
While the concept is cynical, MDLZ may benefit as one of the bear market stocks to buy because economic downturns incentivize poor eating habits. According to U.S. News & World Report, the Great Recession made us “fat, drunk and mean.”
In the next (possible) recession, it can also make MDLZ stakeholders a little richer than before.
Historically, big-box retailers like Walmart (NYSE:WMT) represented relatively easy choices for bear market stocks to buy. Recession or not, people have to eat and shop for essentials (and the occasional non-essentials for holidays/birthdays). Therefore, WMT presents a strong candidacy.
Unfortunately, the unique dynamics of the post-coronavirus environment threw a monkey wrench in the aforementioned assumption. To make a long story short, Walmart and its ilk overestimated consumer demand, thus procuring way more inventory than they actually needed. To summarize, it’s what Michael Burry referenced as the bullwhip effect.
While it’s a terrible predicament that Walmart is in, there’s an argument to be made that the bearishness may already be priced in. For the record, WMT is down over 14% YTD at the time of this writing. Further, the security makes for one of the best bear market stocks to buy on the dip for its everyday low pricing that will almost certainly help households stretch their dollars.
PG&E Corporation (PCG)
When people hear the name PG&E Corporation (NYSE:PCG), it’s difficult not to get a sick sensation in your stomach, particularly if you’ve been negatively impacted by the utility giant. As the New York Times mentioned last year, prosecutors in northern California filed criminal charges against the firm in relation to the deaths of four people in 2020 in a wildfire.
Investigators determined that the Zogg fire — which burned more than 56,000 acres and destroyed 204 buildings near Redding – “was caused when a pine tree came into contact with electrical lines owned and operated by PG&E.” While I could write all day about the controversy, the accusation is that the utility firm engaged in pervasive illegal actions.
Not surprisingly, PCG is down nearly 18% YTD. Still, as a long-term discount, PCG could be one of the viable bear market stocks to buy. With the company covering many lucrative areas in California — which is the biggest economic engine of the U.S. — PG&E is relevant, whether we like it or not.
On the surface, Lemonade (NYSE:LMND) commands one of the most intriguing business models among publicly traded companies. Leveraging an insurance technology platform, Lemonade takes a boring process and makes it both quick and convenient. Through an app utilizing artificial intelligence protocols, the company can connect users to insurance products within minutes.
Further, Lemonade has significantly expanded its footprint during its young lifespan. Primarily known for providing renters insurance, the company has branched out to pet and homeowners insurance, and more recently to car and term life insurance.
Unfortunately, the market remains unimpressed, with LMND stock shedding over 53% YTD. The issue comes down to the fundamentals. While Lemonade has decent strengths in its balance sheet, its profitability score is terrible. Generally, you want your insurance firms to be profitable and enjoy consistently positive free cash flow.
However, many people seeking homes have been priced out of this seeming real estate bubble. And that leaves these folks in an awkward position, unable to buy a home but having outgrown their apartments. But with few workable options, renters may keep renting, which benefits Lemonade’s core business.
Kratos Defense & Security Solutions (KTOS)
Typically, defense contractors are not the first thing that comes to mind for bear market stocks to buy. What makes the selection of Kratos Defense & Security Solutions (NASDAQ:KTOS) more peculiar is that — to my knowledge — it doesn’t have a direct or major involvement in Ukraine’s defense against the Russian invasion. So, why bother mentioning KTOS?
Well, to keep in the spirit of this article’s theme, I couldn’t pick the defense contractors that are heavily involved in Ukraine since those equities are up since the start of the year. On the other hand, KTOS is down nearly 34% YTD. That’s quite a discount for contrarians to consider.
But the more important consideration is that Kratos Defense can essentially ride the coattails of the military contractors that are deployed in eastern Europe. For instance, the battlefield effectiveness of tactical drones may help bring positive attention to Kratos’ unmanned aerial vehicles.
Granted, it’s a long shot, but if you want to ramp up the risk-reward profile of your bear market stocks to buy, KTOS is an interesting candidate.
Essex Property Trust (ESS)
At this juncture, I have deep reservations about Essex Property Trust (NYSE:ESS), a real estate investment trust (or REIT) that specializes in apartment homes in the west coast, particularly California and Washington. Ordinarily, I would be unreservedly optimistic about ESS.
After all, the company features most of its properties in the good parts of the Golden State: San Diego, Orange County, Santa Barbara, Los Angeles and San Francisco (although I can’t really say anything positive about the latter’s sports teams). The point is, people in these cities have money. This bodes well for ESS, right?
Unfortunately, the market doesn’t think so, with shares down about 26% YTD. Even more problematic is the looming fear of recession. If a serious downturn materializes, Essex Property could get ugly in a hurry.
However, one of the consequences of the wild housing market is that it also spiked up apartment rentals. Essex is no different, with the company really sticking it to California residents (I’m sure Washington residents are not exempt). Sadly, if you want to live in these desirable neighborhoods, you got to pay the piper.
On the date of publication, Josh Enomoto 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.