Investors are rightfully shopping for the best bear market stocks as the market downturn sees no end in sight. The Federal Reserve is still hiking despite high inflation starting to ease, likely targeting rates near 5%. That means another 50 basis point hike or two 25 basis point rate hikes. If inflation keeps decreasing at this level, we may even see the terminal rate higher than inflation, a rate the Fed is committed to holding at for a long time. That cloud will bring a lot of pain for the stock market in early 2023, and most current indicators point toward a recession.
With that in mind, the best bear market stocks are value stocks and non-cyclical ones like consumer staples. Even if a deep recession does hit in 2023, the following seven stocks will offer a safe haven for investors as their businesses have inelastic demand or are already trading at a hefty discount:
Best Bear Market Stocks: McDonald’s (MCD)
McDonald’s (NYSE:MCD) is an iconic brand that has been a staple of the American landscape for decades. It’s no surprise that the company has also been a long-term winner for investors. With 40 consecutive years of dividend increases, McDonald’s has established itself as one of the best bear market stocks for defensive investors.
But there is more to McDonald’s than just its dividend. The company is highly resistant to recessions and thrived during the great recession. Even during the pandemic-induced recession, restaurant businesses worldwide were seriously affected while McDonald’s still turned a profit. Thus, MCD has a track record of weathering the harshest economic conditions.
Conversely, its financials are in decline, and quarterly revenue has declined by 5.3% year-on-year. But keeping the broader economy in mind, McDonald’s is still faring well against its 2021 metrics. Once margins improve, I see a substantial upside here.
Eli Lilly & Co (LLY)
Eli Lilly & Co (NYSE:LLY) is a global drugmaker focused on discovering, developing, manufacturing, and marketing pharmaceutical products. The company’s portfolio includes treatments for diabetes, psoriasis, and attention deficit hyperactivity disorder. Lilly’s drugs also address the unmet medical needs in other disease areas, such as Alzheimer’s disease, hormone-related cancers, and rare diseases.
The company’s core strengths include a strong product pipeline and a robust innovation strategy. The company has a strong pipeline of drugs in various stages of development, such as Mounjaro for diabetes, Donanemab for Alzheimer’s, and Peresolimab for autoimmune diseases. Once these drugs become commercially available, Eli Lilly will enjoy massive profits. The company’s net income is already growing at nearly a 31% clip. Even margins are up 27.6% YoY, which is unheard of in this environment. Thus, the premium for the stock is more than justified.
Furthermore, the company focuses on growing its business through partnerships and collaborations. We’ll likely see even more breakthroughs in the coming years as a result. The stock has also historically delivered a strong performance and offers a healthy dividend yield of 1.26%.
Best Bear Market Stocks: PepsiCo (PEP)
PepsiCo (NASDAQ:PEP) is a consumer staples giant that has been a mainstay of the stock market for decades. The company has a diverse portfolio of iconic brands that won’t go out of relevancy even during the deepest of recessions. The company’s product diversification has enabled PepsiCo to maintain steady growth for years, and revenue growth accelerated to 8.8% in the latest quarter.
Additionally, PepsiCo has a healthy dividend yield of 2.54% and a dividend payout ratio of 63.2%. This dividend has increased for 50 years consecutively. PepsiCo is also reasonably priced, trading at a forward price-to-earnings ratio of 26 times; there is little potential downside considering its robust financials.
This value, combined with the company’s steady growth and dividend, makes PepsiCo among the best bear market stocks for passive investors. Analysts expect the company’s momentum to continue, with forecasts of 7.5% revenue growth next year.
Flowers Foods (FLO)
Flowers Foods (NYSE:FLO) is an integrated bakery company engaged in producing and selling a diversified portfolio of baked goods. The company has remarkably consistent growth, and its growth is almost identical to that of the S&P 500. The catalyst here is that FLO’s downside risk is significantly lower than that of the index, and the stock is up 4% this year.
Additionally, Flowers Foods is investing in new initiatives, such as its recent acquisition of Papa Pita Bakery, to drive growth. The company’s strong presence in the inelastic bakery industry makes it a reliable stock for long-term growth. It also makes it highly resistant to recessions.
Moreover, FLO also has a dividend yield of 3%, increasing consecutively for the last 19 years.
Best Bear Market Stocks: Target Corporation (TGT)
Target Corporation (NYSE:TGT) is a major U.S. discount retailer, a sector highly resistant to recessions with a robust e-commerce presence. The company’s core strength lies in its potent product mix and offerings, including groceries, beauty, apparel and home products.
Target is expanding its product portfolio through innovative products and partnerships with other top brands. The company has a strong presence in the e-commerce space and is expanding its digital offerings through partnerships with leading tech giants, such as Amazon (NASDAQ:AMZN).
Moreover, Target is investing in its supply chain and logistics network to grow its business and expand into new geographies. The company also focuses on increasing its exclusive product offerings and partnerships with emerging brands to drive growth. The stock has historically delivered strong results and offers an attractive dividend yield. The company has a consistent track record of dividend hikes and is expected to continue raising its dividend payouts.
Overall, Target is a great buy during this downturn due to its strong fundamentals. The selloff earlier this year also means that investors will get great value for TGT stock.
Unilever (NYSE:UL) is a global consumer goods company with a diverse portfolio of iconic brands across food, home care, and personal care. The company’s portfolio of many household brands will remain in demand during the deepest of recessions.
Unilever invests in new initiatives and partnerships to drive growth and expand across geographies. The company’s core strengths include a strong product portfolio and a robust innovation strategy. Unilever’s product portfolio comprises a wide range of products across diverse categories, such as tea, coffee, ice cream, breakfast cereals, toothpaste, and skin and hair care.
Furthermore, Unilever is partnering with top brands and hosting strategic alliances to expand its business and increase market share. The company has a strong presence in developing markets, such as Asia and Latin America, and is investing in emerging markets to drive growth. As a result, its top line is growing at a robust 15% clip, even in this climate.
Best Bear Market Stocks: Visa (V)
Visa (NYSE:V) is one of the world’s best companies and a great option for investors looking for long-term growth. With a wide-moat business model and strong dividend dependability, Visa is a fantastic buy in an overvalued market.
First, Visa has a unique position in the payments industry, with a large network of merchants and consumers around the world. This network gives Visa the ability to process payments quickly and securely and provides a competitive advantage over other payment networks. Second, Visa has strong dividend dependability. The company has increased its dividend for 13 consecutive years, and the current dividend yield is 0.88%.
The company has historically outperformed the broader economy during a recession, and its financials are surging due to rate hikes. As the Fed aims to hold at higher interest rates for longer, Visa will be among the beneficiaries.
On the date of publication, Omor Ibne Ehsan 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.