The 7 Best Bear Market Stocks to Buy Now
With the U.S. Gross Domestic Product (or GDP) figure coming in positive (2.6%), is the bull market on the verge of making a return? Not so fast. For now, it’s still best to keep taking a defensive approach, and sticking with the best bear market stocks.
Sure, a positive GDP number, after two quarters of GDP declines, may suggest that a much-feared 2023 recession is no longer on the table. However, much of this increase can be chalked up to a narrowing trade deficit, which economists have stated is a one-off occurrence.
Over the next few quarters, the Federal Reserve’s interest rate hikes (which are likely to continue) will really start to have an impact on economic activity. This could mean more volatility, and possibly further broad market declines.
A continued downturn will hammer more cyclical and/or speculative names lower, but the best bear market stocks will likely stay resilient. That stands to be the case here with these seven high-quality defensive names. Each one offers the opportunity for further resiliency, plus the potential for steady returns via dividends.
|BTI||British American Tobacco||$39.53|
|JNJ||Johnson & Johnson||$174.57|
|PM||Philip Morris International||$92.52|
British American Tobacco (BTI)
Held down by their “sin stock” reputation and uncertain future prospects, tobacco stocks like British American Tobacco (NYSE:BTI) delivered middling returns during the bull market.
However, the flip side to this is BTI stock has stayed resilient throughout the 2022 stock market downturn. Shares are up slightly this year. Including dividends from this high-yielder, the stock has delivered a total return of around 9.17%.
Better yet, there may be more room for BTI to deliver solid returns through dividends (7.52% forward yield) and slight appreciation.
Over the past five years, BTI’s dividend has grown by an average of 4.5% per year. Assuming shares could continue to grow in tandem with an increased dividend, it’s not out of the question for British American Tobacco to keep delivering double-digit annualized returns.
CVS Health (CVS)
CVS Health (NYSE:CVS) hasn’t been as resilient as most of the defensive stocks discussed above and below. While experiencing lesser declines than stocks overall, shares are down 11% year-to-date.
So then, why consider CVS stock one of the best bear market stocks? Mostly, because this health services conglomerate is in an industry that will hold up well during an economic downturn. Beyond just its namesake pharmacy chain, the company also owns health insurer Aetna.
Yes, as InvestorPlace’s Chris Lau discussed recently, the Centers for Medicare and Medicaid Services (or CMS) has downgraded one of Aetna’s Medicare Advantage Health Plans.
This will have a negative impact on revenue in 2024. Yet for 2023, sell side analysts anticipate positive earnings growth (around 6%). Trading for only 10.2x next year’s estimated earnings, CVS may be oversold. The stock also offers investors a forward yield of 2.38%.
Dollar General (DG)
Dollar General (NYSE:DG) needs little introduction when talking about its bear market bona fides.
Shares in the discount retailer are up 7.6% YTD, as high inflation and the economic slowdown continue to drive more traffic into the company’s stores.
This strong performance during tough economic times has of course become reflected in the valuation of DG stock. Based on analyst earnings estimates for the current fiscal year ($11.57 per share), DG right now trades at a price-to-earnings (or P/E) ratio of 22.1.
But while this may make DG seem pricey, relative to expected future earnings growth, this valuation may be reasonable. Forecasts call for 9.7% earnings growth next fiscal year.
If the stock can maintain its current multiple, as well as continue to increase its dividend (forward yield of 0.88%), Dollar General could continue to deliver strong returns for investors from here.
Johnson & Johnson (JNJ)
A “dividend king,” with more than 50 years of consecutive dividend growth, Johnson & Johnson (NYSE:JNJ) has long been a great stock to buy and hold in all markets. During this bear market, this blue-chip healthcare stock has stayed in the green.
YTD, JNJ stock has produced a total return of 2.38%. While not setting the world on fire, that’s far better than how major indices have fared. If the bear market persists, JNJ could stay steady, providing a safe harbor in case of additional volatility. Shares could even rise slightly from here, in line with mid single-digit dividend growth.
If the market makes a comeback, from say, a Fed Pivot? Johnson & Johnson could experience a decent rise in price. In the event the Federal Reserve starts cutting interest rates in 2023, JNJ (now at 17.2 times earnings) may move back to a higher valuation (20-25 times earnings).
Philip Morris International (PM)
Philip Morris International (NYSE:PM) is another great bear market choice among tobacco stocks.
PMI, which owns the rights to popular cigarette brands like Marlboro outside the United States, may sport a lower dividend yield (5.67%) than its former corporate parent, Altria Group (NYSE:MO), which has an 8.28% forward yield.
However, there’s a key factor that may more than account for this. That would be PMI’s stronger growth prospects. Philip Morris International has had considerably greater success rolling out non-cigarette tobacco and non-tobacco nicotine products.
If the company’s raised bid for Swedish Match (OTCMKTS:SWMAF) prevails, it could further cement its reputation as the leading name in “post-smoking” tobacco/nicotine products.
In turn, this points to a stronger chance of continued long-term earnings growth. This will likely enable PM stock to sustain and grow its valuation, as well as continue to steadily increase its dividend.
Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) shares have continued to crush it during this bear market. That’s not surprising, given the fact oil and gas prices spiked earlier this year.
Yet while oil has slid from its 2022 high ($126.42 per barrel) on economic downturn fears, factors like production cuts point to prices staying high.
Obviously, this is good news for OXY stock investors. The oil and gas exploration company’s earnings will stay high. OXY will likely hold onto its recent gains as well. As Louis Navellier recently argued, shares could add to their triple-digit 2022 gains, thanks to two catalysts.
First, in the near-term, if Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B) continues to increase its OXY stake, shares could trend higher. Second, over a longer time horizon, Occidental Petroleum’s move into more “green” endeavors, such as carbon capture, stands to also move the needle.
Essential Utilities (WTRG)
Formerly known as Aqua America, Essential Utilities (NYSE:WTRG) took on its current name in 2020. This name change better reflects the diversified nature of this utility giant.
Besides providing residential and commercial water services under the Aqua brand, the company also owns natural gas utility Peoples Gas.
WTRG stock has been hammered lower this year on valuation concerns. Yet following the correction in its valuation, it’s now a much better stock to buy and hold during this bear market.
Given the resilient nature of its business, and its reputation as a dividend growth stock, WTRG stands to maintain its current valuation (around 24.5 times earnings).
Speaking of dividend growth, Essential Utilities has increased its payout 16 years in a row. Over the past five years, its dividend (forward yield of 2.64%) has gone up by an average of 6.99% per year.
At the date of publication, Thomas Niel held a LONG position in MO stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.