On May 20, the S&P 500 briefly crossed into bear market territory. That’s what Wall Street calls it when a stock registers a 20% drop from its highs. Investors are trying to come to terms with the new realities that come with a bear market. After a very long bullish run, the transition won’t likely be smooth. Short term the sellers have control, so they are selling rallies. Therefore, it is important that we structure portfolios that take that into account. Below are seven stocks to buy that would work in a bear market as well as a strong one.
Friday ended on a strong note, but that followed six weeks of tough luck for the bulls. One strong week doesn’t necessarily mean the correction is over. In the long run, arguably the bulls are still in charge. But they have shown relative weakness of late casting doubt over that fact. The hawkish efforts from the U.S. Federal Reserve will take a toll on the economy. Unless they change monetary course again, chances are businesses will have a headwind.
In theory, this should bring about more bearish opportunities than bullish ones. Nevertheless, these are stocks to buy that will do well despite of the potential economic decline.
iShares 20+ Year Treasury Bond ETF
SPDR Gold Shares
Utilities Select Sector SPDR Fund
Johnson and Johnson
iShares 20+ Year Treasury Bond ETF (TLT)
The balance between stocks and bonds is as old as investing. While the experts may disagree on the optimal amounts of each, they all agree on having them. The easy modern implementation to this strategy is to own some iShares 20+ Year Treasury Bond ETF (NYSEARCA:TLT) stock. This is a simple way to “own bonds” by participating in its price action.
The recent tightening of the U.S. monetary policy increased the reward a whole bunch. The ten year treasury yield peaked at 3.17% this month. This was a smidge below the 2018 high, and just above the 2013 high. The brings about another reason to own some TLT that is purely technical.
Since this is the third attempt at a breakout, if the TLT bulls succeed this time they will overshoot. It won’t be easy because these are pivotal levels from 2003. It will take a lot of efforts to breach but if they do, the rally could be substantial.
SPDR Gold Shares (GLD)
The thesis behind owning gold is ancient, and not often does it depend on the economic health. In fact it is old wisdom that everyone who can should always own some. Luckily, the SPDR Gold Shares (NYSEARCA:GLD) exchange-traded fund offers a remarkably convenient way to do this. GLD eliminates the wrinkles that come with actually owning physical gold. Transporting it is difficult, not to mention the risks of storing it.
Gold prices crashed in 2011 and the gloom lasted almost a decade. Finally, in 2020 it made a new high and now it sits pretty close to it. If stocks stumble, then GLD may act as a relative safe haven. Making it part of the portfolio takes away risk from straight up equities. I prefer GLD over its cousin the VanEck Gold Miners ETF (NYSEARCA:GDX), because that one represents companies.
If my goal is to eliminate as many variables, I should then avoid specific company fundamentals from the equation. If the Fed becomes more aggressive, it may prop up the U.S. dollar and hinder GLD a tad.
Utilities Select Sector SPDR Fund (XLU)
My third pick of stocks to buy into a bear market is also an ETF. It is safer to bet on a basket of stocks like Utilities Select Sector SPDR Fund (NYSEARCA:XLU) rather than pick winners or losers. Utilities have always provided a safe haven for expert portfolio managers during tough times. If you want to “be like Warren” (Buffett), then you have to own a bit of that stuff.
Since our purse is not nearly as large as Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), we must settle for more attainable tickers. XLU stock will do the trick, but I do have short-term concerns. Currently the stock has risen too high and near setting a record. This usually creates potential near-term disappointment, so I would wait for a dip. This proves the concept that while the S&P is struggling, our pick is still cranking.
Johnson & Johnson (JNJ)
Johnson and Johnson (NYSE:JNJ) is more than 130 years old, so it has history on its side. This alone is proof that this company will do well through thick and thin. It has more than earned a secure spot on our list of stocks to buy for a bear market. JNJ management has seen its fair share of them over the years. The company made a living helping take care of people’s injuries; its stock can help triage an injured portfolio too.
JNJ stock’s current strength is a slight detriment because it is not cheap. But its financials are top notch with no visible weaknesses. Revenues have grown 40% in seven years, and they netted a cool $20 billion in income. Short of an absolute disaster, this team is on point for the visible future. JNJ stock has enjoyed an incredible run, but it still has support near $160. Should it stumble, investors would do well to accumulate some on weakness.
Constellation Brands (STZ)
Constellation Brands (NYSE:STZ) made a bold move investing $4.5 billion in Canopy Growth (NASDAQ:CGC), the cannabis company. While that investment fizzled, STZ stock didn’t suffer much. Friday, it closed a handful of points below its all-time highs. Clearly, investors don’t have much to fret in the long run.
Management is showing it can be resilient through the toughest test imaginable. While growth is not stellar, they did deliver $2.5 billion in cash from operations last year. This wasn’t a fluke because they have done that at least since 2018.
Technically, STZ stock has some support at these levels but much better at $211. I would much rather an entry point there or lower for the short-term success. The company has a ton of that on its side since it is more than 75 years old. I was at a Memorial day barbecue yesterday that featured two of their drinks. Owning their stock is likely to help your portfolio resist shrinkage during a bear market.
Campbell Soup (CPB)
When I first looked into Campbell Soup (NYSE:CPB) it was to humor a friend of mine. When she pointed it out as a hedge, I thought it was silly until I saw the chart. Year-to-date, CPB stock is up almost 10%, while the indices are toying with a bear market. This is proof positive that owning some makes mathematical sense.
The financial metrics are boring, but that’s perhaps the charm of it. Investors in CPB don’t expect much but more of the same. There isn’t much that is inconsistent in its financials. When seeking safe havens, investors need stability and Campbell Soup provides it in drove. That is how it sneaked its way onto my list of stocks to buy for a bear market. It will probably hold its value if not appreciate while the indices struggle. And it rewards its owners with a respectable dividend more than what bonds currently pay.
During the pandemic, Clorox (NYSE:CLX) products were in high demand. The world needed to sanitize things so demand soared. While they may have pulled sales forward, some of these habits will likely linger to a degree for a while. Their product line up is broad enough to withstand a multitude of economic setbacks. We need a bit of their products in almost every room of the house.
So if the stock market stumbles and they sell growth company stocks, CLX might catch the bids instead. For the last seven years, management delivered 20% top line growth. But the bottom line remains lack-luster so there is a bit of bloat. The CLX price-to-earnings ratio is higher than normal, so there might be a potential weak point there.
This is burning off from the effects of the pandemic. CLX stock is now 40% below that high water mark, which is a good thing. Soon it will revert to trading in accordance with its its normal “thesis,” and without the virus tailwind.
On the date of publication, Nicolas Chahine 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.
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