We are seeing a surge in stock prices.
This behavior is attributed to factors like an apathetic attitude towards international geopolitical concerns and a consistently strengthening economy. There is also a wider consumer and corporate confidence in the market. T
he Dow Jones Industrial Average, the Nasdaq and the S&P 500 have all shot up in recent months. Looking at this, it appears that the overall stock market is near all-time highs if not already at it.
Protect Your Portfolio From When The Bears Come
Despite all these record prices, many analysts believe that these good times will not be permanent. Investors then should brace themselves for the shift in trend. Although a repeat of the 2008 crash is highly unlikely, recent volatility should have investors thinking of a worsening scenario. We may be sitting on a 7-year bull run now but a significant downturn is still a possibility.
How should you protect your portfolio then?
Following our last and popular article on the most defensive stocks for 2017 – here are some of the best bear market stocks to buy.
Wal-Mart Stores, Inc. (NYSE:WMT)
Wal-Mart’s low price strategy looks really attractive to customers, especially in a struggling economy. Sales of their U.S. stores that operated for at least a year grew by 3.5% for the FY ending January 2009. Comparatively, same-store sales of high-end competitor Target (TGT) fell 2.9% during the same period. For the quarter ending last October, Wal-Mart’s overseas stores generated 29% of their total sales.
Wal-Mart must protect its niche against a growing number of discount chains and online retailers. Low fuel prices are expected to give consumers more spending money and help raise Wal-Mart’s revenues. Although it reported a 1% increase in total revenues for their last fiscal year, high operating costs affected their income. It went down 2.5% but net figures remain a high $6.4 Billion.
We’ve been following Wal-Mart stocks over the years. We’ve seen how a whimsical market has occasionally punished the share prices. Poor earnings report sent the values down 27% in the last twelve months. This, despite the fact that the company has a 10.8% ROIC and has actively reduced bad debts during the period.
Defensive but attractive
WMT is also the only stock on this list that is included in the companies that gained 10% or more in 2008. It has proven its potential to flourish even if the market is down. It’s 3% gain in 2016 as the rest of the market falters is a strong statement. It shows knowledgeable investors are already converging to one of the best blue chip stocks in the market.
Its current price of $75 per share and a PEBV of 0.8 suggest that investors are projecting a 20% reduction in NOPAT. Even with the presence of threats like Amazon (AMZN), eBay (EBAY) and other online retailers, Wal-Mart remains strong. Its track record of growth and profitability makes it difficult to believe that such drastic decline will happen.
General Mills (NYSE:GIS)
General Mills is behind household name brands such as Häagen-Dazs, Pillsbury and Cheerios. It is not surprising, therefore, that the company’s sales continuously rose from 2008 to 2014. This was despite the fact that during this period consumer purchases were generally down.General Mills was also hit by the market sell-off during the financial crisis.Unlike many stocks, its loss was still below the S&P 500’s 55% beating.
During an economic downturn, companies that have strong brands and pay reliable dividends are good investments. General Mills also scores high on the dividends criteria. It has an impressive 3.2% dividend yield a 12-year record of payout increases. One can rarely find a stock that offers both above-average total returns and minimal price volatility. Over the last ten years, General Mills has pegged an annualized stock price standard deviation of only 17.0%.
The company’s packaged food products are some of the most popular brands: isCheerios, Trix, and Nature Valley, to name some. Stagnant sales and low demands for its core products have raised some concerns. How strong really is its product lineup in this current environment? Well, General Mill is well positioned to overcome an economic slowdown. In fact, it is one of the few large-cap companies expected to bloom in the midst of a bad economy.
One big challenge to General Mills is the consumer shift from organic and non-GMO products. It seems that it does not have yet a foothold in that niche. But if people will have less disposable income, the trend could reverse or mellow. Premium, health-oriented but more expensive products will be set aside in favor of cheaper ones. If lapsed consumers go back to packaged products like boxed cereals, it would ease the pressure on General Mills.
It would have more time to build up its own health-oriented lines and lessen the urgency to acquire emerging competitors. A decrease in dining out and a rise in online food order would also be to General Mills’ advantage.
Johnson & Johnson (NYSE:JNJ)
This stock could well be the most consistent company of all the publicly traded stocks.
Consider its record: 53 consecutive years of increasing dividend and 31 consecutive years of adjusted EPS growth. True to its form as a stable business, Johnson & Johnson easily breezed through the 2007-2009 recession. The company even saw its earnings-per-share grow each year during that period.
Take a good look at this:
- 2007 – EPS was $4.15
- 2008 – EPS was $4.57
- 2009 – EPS was $4.63
For the same period, the stock chalked up total returns of 5.8%, outperforming the S&P 500’s -15.9%. There is no doubt that Johnson & Johnson is a high-quality dividend growth stock. The company has compounded its earnings-per-share at 5.6% and its dividend by 8.9% a year for the last ten years.
Holders of JNJ stocks should anticipate a slow but reliable 6% annual growth. Couple this with company’s 2.9% dividend yield so expect total returns of around 9% per year. Johnson & Johnson’s current PE ratio of 22.6 is below the industry average of 26.6 but above S&P 500’s 21.2. It indicates that JNJ stocks might still be undervalued at this time.
Globus Medical (NYSE:GMED)
If you’ve had a spine surgery, there is a high chance that a Globus Medical product has been implanted in you. Globus Medical, Inc. is the leading musculoskeletal implant manufacturer with a complete suite of spinal products. It’s not a glamorous field but it is the fastest growing company in the history of orthopedics. With their advanced technology, an aging population and more access to healthcare, more growth is expected.
For only the first 6 months of 2016, Globus generated $276.8 million in revenue with net operating earnings of $80.8 million. Operating income increased 6.9% while operating revenues grew by 4.4%, year-over-year. GMED has reported revenues of $564 million for the FY 2016. Part of this comes from the $80 million recent acquisition Alphatec Holdings, Inc. (NASDAQ: ATEC). Adjusted earnings per share stood at $1.19, which is 5.3% higher than the previous year. 2017 revenue target is at $640 million, well on its target to break the $1 billion mark.
What was really striking from their second quarter earnings report was the statement that the company remains debt-free. With total assets of more than $900 million and a quick ratio of 5.02 for 2016, Globus Medical remains a solid buy.
Williams-Sonoma (NYSE: WSM)
Specialty retailer Williams-Sonoma had an incredible run from 2009 to 2014, giving shareholders some great gains. Come 2015 however, the stocks took a spill. This company that seemed indestructible both on the online and brick-and-mortar fronts suffered a business slowdown. Predictably, investors took their money and went elsewhere.
Because of this, WSW stock has depreciated some 44%, reaching the levels it recorded in early 2013. Its all-time high was reached in August 2015 when it hit $89.38/share.
It is true that same-store sales have virtually vanished and the company is showing a slow growth.
However, there are other factors that make SWS stand out:
For one, it has no long-term obligations aside from store leases. It has more than $111 million in cash assets and no debts. Revenues are on the rise though not too significantly with a reported @1.11 billion for the first quarter. WSW looks on track to hit their five-year annual revenue target of $2 billion.
Another advantage that might turn the tide is their global revenues. There abound opportunities outside the U.S. that could pull their present overseas sales higher than its present 6% mark. Look for William-Sonora to make their presence felt in the international market.
Lastly WSW strikes a perfect balance for their online and brick-and-mortar stores. Revenues are split evenly down the middle – something most retailers only dream of.
Williams-Sonoma yields about 3%, TTM Revenues are on the rise, and it trades at less than 13X cash flow.With all these lineups of statistics, WSW is an inspired pick for value investors.
Southern Company (NYSE: SO)
Southern Company is America’s premier energy company and derives 100% of its income inside the US. Southern Company operates 11 regulated utilities that serve more than 9 million customers in 16 states. The South’s strong economic showing is pushing revenues and is projected to grow by 3.3% annually in the next few years.
Two big projects are underway:
A nuclear power plant in Georgia and a clean-coal facility in Mississippi. Although right now, these projects are squeezing revenues due to cost overruns, they boost contribute to income very soon. Dividends should climb some 3% to 3.5% a year over the next few years, according to Argus Research. This will help prop up Southern Company’s generous returns.
Dril-Quip (NYSE: DRQ)
Deepwater Horizon is a 2016 movie about a drilling rig explosion off the Gulf of Mexico in 2010. A massive fireball killed 11 workers and injured 17 others. This probably hit home for Houston-based Dril-Quip, a manufacturer of drilling equipment for oil and gas wells. Although the company had equipment on Deepwater Horizon, they were found to have no connection to the accident.
Business is largely affected by oil price. The decline in oil prices for the past 18 months caused revenues to suffer. In fact, shares dipped after 4th quarter earnings came below expectations. First quarter results for 2017 are not too encouraging either. DRQ reported an operating loss for the quarter compared to some $49.3 million operating income for the same period in 2016. The company’s year-end 2016 backlog is less than half the year-end 2015 total: $318 M against $ 685 M.
Before the collapse of oil prices in 2015, Dril-Quip had five years of revenue increases. This shows that when oil prices recover – and naturally, they will – business will soar once again.