The stock market is an effective place to build wealth over time, but that doesn’t mean it’s always trending up. Sure, if you hold investments for the long run, chances are you’ll come out ahead. But a bull can’t run non-stop.
When bull markets wind down, bear markets often set in. As the grizzlies step onto Wall Street, they slash valuations, sending the Dow Jones Industrial Average, Nasdaq composite, and S&P 500 index for painful declines.
So how do you tame the bears and come out unscathed — or even better off? You focus your investment dollars on the right investments.
Best Stocks to Buy in a Bear Market
Stock prices are falling, benchmarks are red across the board, and it’s clear a market downturn is in full swing. Everywhere you look, a selloff seems to be taking place.
You own shares of Apple, Amazon, Tesla. Why not Banksy or Andy Warhol? Their works’ value doesn’t rise and fall with the stock market. And they’re a lot cooler than Jeff Bezos.
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But you may be surprised to find a few gems among the rubble.
That’s especially true when you look at noncyclical sectors like health care, consumer staples, energy, and defense. However, if you look hard enough, you’ll even find a few worthy mentions in the most unlikely of areas, like tech and growth stocks.
1. Berkshire Hathaway (NYSE: BRK.A)
Best for following the lead of the world’s foremost value investor.
- Dividend Yield: 0% (Famously)
- YTD Performance: -9.61%
- Analyst Opinions: According to TipRanks, one analyst rates the stock a Buy while two rate it a Hold. The average price target is $560,045.00, representing a 36.11% potential upside.
Warren Buffett, also known as the Oracle of Omaha, is one of the most influential investors who’s ever lived. Even if you’ve never invested a penny, chances are you know the name when you hear it. Buffett is famous as a successful value investor.
Warren Buffet isn’t just Berkshire Hathaway’s largest shareholder, he’s the genius who turned the struggling holding company into what it is today after taking control in 1965.
When you invest in Berkshire, you’re essentially investing in Buffett and his investment strategies.
The firm is a holding company that focuses primarily on U.S. markets — and it does its best work in bear market territory. Following Buffett’s lead, the firm is known for using a bear market to find bargains on the best stock picks. As a Berkshire Hathaway shareholder, you own a piece of its investments.
The company’s shares are down about 10% year-to-date, which may turn some investors off, but it’s actually an impressive showing. After all, the S&P 500 is down around 20% in that time.
There’s irony in the stock’s declines. Buffett has long preached the importance of buying stocks at a discount. Now, the stock representing a company he turned into the mythological phoenix is trading at a discount. There have been few better times to dive in.
Don’t let the stock’s six-figure price per share intimidate you. There are many brokers that allow you to purchase fractional shares of BRK.A, or you can get class B shares (NYSE: BRK.B), which have smaller voting rights and a much more modest price of around $300 per share.
2. AbbVie (NYSE: ABBV)
Best for dividend growth.
- Dividend Yield: 3.65%
- YTD Performance: 14.26%
- Analyst Opinions: 11 analysts rate ABBV a Buy, five rate it a Hold, and one rates it a Sell. The average price target is $164.59, representing a more than 6% upside.
Bear markets are times when you want exposure to minimal volatility. Not only is the stock of pharmaceutical company Abbvie known for relatively steady upward movement, but it’s also a dividend aristocrat. That means the company has consistently paid dividends and increased its base dividend every year for at least 25 years.
That solid performance is expected to continue with this stable income play.
AbbVie is the health care conglomerate that owns the rights to the best-performing prescription drug in history — Humira. It also has a portfolio that includes Botox, Imbruvica, and Rinvoq. The company owns the rights to more than 100 commercialized medications and medical devices producing more than $46 billion in sales last year alone.
Recently there’s been a debate about the stock because the company faces generic competition for Humira as soon as mid-2023. However, the company also has a pipeline of products awaiting approvals from the Food and Drug Administration that could become blockbusters of their own.
All told, AbbVie has a long and proven history of dominance in the health care industry. Although the stock won’t make you rich overnight, it’s known for stable growth over time, making it a top pick during bear markets and one of the best dividend stocks to boot.
3. Coca-Cola Co (NYSE: KO)
Best for consumer staples investors.
- Dividend Yield: 2.8%
- YTD Performance: 5.85%
- Analyst Opinions: 13 analysts rate the stock a Buy, four rate it a Hold, and there are no Sell ratings to speak of. The average price target is $70.94, representing a potential 13.03% upside.
Consumer staples stocks have a special place in my heart and in my portfolio, and they should in yours too. These stocks represent companies with products so popular that you’re going to buy them even in poor economic times. Sure, they’re known for slow growth and they’re not all that exciting. But they’re a great hedge against inflation and volatility.
Maybe that’s why they’re a favorite investment among billionaires.
You can’t talk about consumer staples without talking about Coca-Cola. The company owns the rights to and shares the name of the most popular soft drink in history.
As the times change, so too does the company. Not too long ago, many thought KO would get KO’d by more health-conscious consumers. The company trucked forward, added a few health-conscious brands to its line, and maintained its throne as the dominant player in the soft drinks category.
Not to mention, Coca-Cola is a commodity. When inflation hits hard, the price per serving rises, offering an effective inflation hedge.
The bottom line is that Coca-Cola is known for industry dominance, consistent growth, impressive free cash flow, and dividends — all of which are compelling qualities in a bear market.
4. General Dynamics Corporation (NYSE: GD)
Best for playing on federal strength.
- Dividend Yield: 2.30%
- YTD Performance: 5.77%
- Analyst Opinions: Five analysts rate GD a Buy, two rate it a Hold, and none rate it a sell. The average price target is currently $272.57, representing a more than 24% upside potential.
Regardless of the state of the market, countries will always have a defense budget. Disputes are part of the human condition, and geopolitical disputes can end in war, so countries always must be prepared. As a result, defense stocks like General Dynamics Corporation are often strong picks whether the bulls are running or the bears are shredding.
The company has a long history of stable growth, even in down markets. It also shares a category with AbbVie as a dividend aristocrat. GD has increased its dividend for the past 31 consecutive years.
Sure, the company felt some pain through the dot-com bubble, the real estate bubble, and COVID-19, but it quickly recovered from each, coming back to create new record highs, and it never missed a beat on dividend payments.
What really makes General Dynamics unique is the fact that while it qualifies as a strong dividend stock, analyst expectations put it in the growth stock category as well. If the stock reaches the more than 20% growth analysts are expecting over the next year, it will more than double the average annualized return of the S&P 500.
5. T-Mobile US Inc (NASDAQ: TMUS)
Best for the telecommunications defense.
- Dividend Yield: 0%
- YTD Performance: 17.64%
- Analyst Opinions: Six analysts rate the stock a Buy, one rates it a Hold, and there are no Sell ratings. The average price target is $176, representing a more than 30% potential upside.
It’s rare to find a stock displaying growth-stock characteristics in a bear market. Most growth stocks find themselves tumbling when the bears take control. However, telecommunications has always been a sweet spot on Wall Street, where the best performers tend to do well even when the bears have control.
One such stock is T-Mobile.
The telecommunications giant is up more than 17% so far this year, while the overall market is down around 20%. That’s impressive by any measure, and analysts expect the stock to continue on the upward path. If analysts are correct, the stock could climb another 30% over the next year — three times the average annualized growth of the S&P 500.
What’s so special about T-Mobile?
Two years ago, the company merged forces with another leading telecommunications provider, Sprint. Since the merger, the company has been on an upward trajectory, as the benefits of the deal seem to improve as the deal ages. The merger allowed T-Mobile to rapidly build out its 5G infrastructure. That buildout is becoming a major payoff for investors.
T-Mobile is only likely to continue heading up as it continues to build out its infrastructure and capture a larger share of the telecommunications market.
6. Amazon.com, Inc. (NASDAQ: AMZN)
Best for the rebound.
- Dividend Yield: 0%
- YTD Performance: -36.08%
- Analyst Opinions: 37 analysts rate Amazon.com a Buy, one rates the stock a Hold, and there are no Sell ratings. The average price target is $177.58, representing a more than 60% upside potential.
I know what you’re thinking. “Amazon is a growth stock and a tech stock, the two categories you usually want to stay away from when the bears have control.”
You’re right, but Amazon is the exception to the rule.
Amazon thrived in the face of the COVID-19 pandemic and even as the fear dwindled. The company’s sales consistently grow, and it’s known for beating analysts’ expectations on revenue and earnings just about every quarter.
The company has a solid balance sheet and its margins are climbing dramatically thanks to the popularity of Amazon Web Services (AWS).
Maybe that’s why Amazon.com is the third most popular stock in exchange-traded funds (ETFs).
Adding icing to the cake, Amazon is known for offering lower prices than its competitors. Where do you think consumers are most likely to shop when economic concerns arise and consumer sentiment falls? You guessed it — at low-cost retailers like Amazon.
Sure, the stock may fall a bit more. There’s no telling, but when the market turns bullish, Amazon’s rebound is likely to be nothing short of spectacular.
7. NextEra Energy Inc (NYSE: NEE)
Best for clean energy allocation.
- Dividend Yield: 2.24%
- YTD Performance: -17.08
- Analyst Opinions: 11 analysts rate the stock a Buy, four rate it a Hold, and there are no Sell ratings. The average price target is $90.73, representing a nearly 20% upside potential.
NextEra Energy has had a tough go in the market so far this year, but if you’re looking for an undervalued energy sector opportunity, look no further. NextEra is one of the largest electric utility providers in the United States. It’s the parent company of brands like Florida Power & Light, Gulf Power Company, and Florida City Gas.
What makes the company one of our favorites is its clean energy initiatives.
NextEra Energy has been aggressively building wind and solar power plants to move away from fossil fuels and provide clean energy solutions. Although the investments in technology and the buildouts of these wind and solar farms have been expensive, they’re likely to pay off significantly in the long run.
All told, if you want to get into the clean energy space, but you want to do so with the strength and stability offered by utilities stocks, NextEra is the way to go.
Final Word
Bear markets are scary, and unfortunately, many suggest the 2022 bear market will continue for some time. With geopolitical tensions between Russia and Ukraine all over the news and the Federal Reserve racing to raise interest rates in the face of inflation, the markets could see more red.
But the market experiencing a downturn doesn’t mean you have to accept losses.
Consider the stocks above, but do your own research. Look for companies that are known for stable growth, paying dividends, and fast rebounds after drawdowns as you invest in a down market.
Disclaimer: The author currently has no positions in any stock mentioned herein nor any intention to hold any positions within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the companies mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.