During stock market sell-offs, people often flock to what they consider to be safe stocks to avoid further losses. But that short-term mindset leaves a portfolio vulnerable to missed opportunities when the market finally recovers.
No one knows when the next bear market will hit or how long it will last. If you accumulated safe stocks during the COVID-19 sell-off of spring 2020, you probably missed out on monster gains from the fastest-growing sectors of the economy. Conversely, if you overbought the winners of the pandemic over energy, industrials, or utilities stocks, you missed out on the outperformance that many names in those sectors have since enjoyed.
Instead of oscillating and weaving in and out of what works or doesn’t work, a better strategy for surviving a stock market selloff is to own companies you can count on from a variety of sectors, including safe stocks, value stocks, and growth stocks.
When your back is against the wall and your screen is painted red with stock prices falling, you want a mix of companies that can throw consistent punches and some with upside potential for knockout punches. Here are 10 actions worth considering now.
The basic consumer game
Betting on safe stocks is a bad idea. But owning some of the best safe stocks can be a great way to round out a diversified portfolio.
Procter & Gamble (PG 1.07%) it’s the quintessential recession-resistant dividend stock. Demand for P&G products remains consistent despite market cycles, typically resulting in low- to mid-single-digit organic growth during good times and bad.
P&G gets tons of free cash flow that it uses to buy back its own stock and pay and increase its dividend, which it has been doing for 65 straight years. For investors looking to secure a solid income stream, P&G is the stock you want in your corner during a bear market.
The discretionary game of the consumer
starbucks (SBUX 8.15%) Shares hover near a 52-week low as inflation fears, CEO job uncertainty, unionization and a suspended share buyback program collide with broader market volatility. Starbucks now has a P/E ratio of 21.5, while the median P/E ratio over the past 10 years has been 31.5. Starbucks is generating record revenue and recovering nicely from the pandemic, and it has plenty of ways to grow its business as it shifts to takeout thanks to the strength of the Starbucks Rewards program. With a 2.5% dividend yield, Starbucks stock is a compelling buy.
the financial game
JPMorgan Chase (JPM 0.89%) it is the largest banking stock by market capitalization. It has a P/E ratio of 8.5 and a dividend yield of 3.1%, and is arguably the bank with the best CEO in Jamie Dimon. JPMorgan has it all. And it has a reputation for weathering volatility and recessions.
Higher interest rates tend to help banks. But JPMorgan’s corporate and investment banking division prefers lower interest rates, so the impact of rising interest rates isn’t as good as it first appears.
Still, JPMorgan is a long-term winner and one of the safest financial services companies out there.
The communication game
Like many stocks on this list, walt-disney (DIS 2.90%) shares are hovering around their 52-week low. Disney’s investment thesis has changed dramatically in the last three years and investors are still getting used to it. Disney has gone from being an incredibly profitable media business that paid dividends to a non-dividend-paying stock that doesn’t make as much money as it used to because it invests heavily in streaming through Disney+.
Of course, the COVID-19 pandemic disrupted Disney’s business even more than the 2008 financial crisis, so the company will need more time to recover. However, the data so far indicates that people are flocking to Disney parks, and the reception of the content it has produced for Disney+ has been favorable. Given that Disney stock is lower now than it was before Disney+ launched, Disney seems like a good buy now.
Caterpillar (CAT 0.64%) manufactures equipment for oil and gas, shipping and rail, agriculture, construction, mining, and other industries. Its exposure to the global economy means that its results tend to fluctuate based on economic cycles. But what makes Caterpillar uniquely positioned for the cycle we’re in now is that it’s benefiting from higher oil and gas prices and higher commodity prices. Higher commodity costs, whether for base metals or energy, are among the driving forces contributing to inflation right now. If the economy goes into a recession anytime soon, inflation will likely be the main cause of it. And because Caterpillar’s business units are essentially contributing to higher inflation, not falling victim to it, Caterpillar is well positioned for short-term headwinds in the broader economy.
Caterpillar could very well have a record year when 2022 is all said and done. And even if it doesn’t, Caterpillar is a dividend aristocrat that has paid and increased its dividend for 27 straight years, making it a reliable holding with upside potential. A dividend aristocrat is a S&P 500 component that has paid and increased its dividend for at least 25 consecutive years.
NextEra Energy (SINGLE 1.88%) It is the largest regulated electricity company by market capitalization. It has spent decades investing in solar, wind, and hydropower as it plays its part in decarbonizing the grid. But NextEra and its subsidiaries still operate substantial natural gas assets, giving it a diversified energy portfolio from both fossil fuels and alternative sources.
Stable contracts allow NextEra to gradually grow its business and support its dividend. NextEra is one of the newest members of the Dividend Aristocrats list and has a 2% dividend yield.
the energy game
Few oil and gas companies are as comprehensive as Chevron (CLC 1.92%). Chevron is a dividend aristocrat with a 3.5% dividend yield. You can break even on free cash flow when oil is at $40 a barrel and make a lot more money when it is higher. It operates throughout the entire upstream, midstream and downstream oil and gas integrated value chain. It is also investing in renewable natural gas, renewable diesel and other forms of alternative and renewable energy. Natural gas and diesel in themselves are non-renewable resources. But natural gas produced from landfill gas from a waste facility and renewable diesel produced from a refinery that uses soybean feedstocks instead of petroleum feedstocks are renewable energy sources. That means Chevron could be a relevant player in a low-carbon future, so its long-term investment thesis is no longer tied solely to oil and gas.
Sherwin Williams (SHW -0.44%) is a well-known residential painting company. But it also manufactures coatings and paints for commercial and industrial customers. Additionally, it sells many of its products under brand names that do not carry the Sherwin-Williams label, making it a much larger company than most people realize. These brands belong to its segment of consumer brands. The Consumer Brands segment and Performance Coatings segment combined generated $844.8 million in operating income in 2021, compared to $2.24 billion in operating income for the Sherwin-Williams-branded Americas segment.
Shares of Sherwin-Williams are down 30% from their all-time high as the housing sector shows signs of cooling, weighing on demand for its products. But Sherwin-Williams is a Dividend Aristocrat who has been through business cycles before. And as a leader in her industry, there’s reason to believe Sherwin-Williams can continue to grow her business for decades to come.
The health game
In the past five years, investors have rarely had the opportunity to buy shares in the maker of robotic surgical systems. intuitive surgical (ISRG 5.67%) on sale. But with the stock down about 24% from its all-time high, now seems like a good time to buy shares of Intuitive Surgical.
The company generates the majority of its revenue from recurring sources, but its growth has also been impressive. In the last five years, Intuitive Surgical has increased its revenue by 82% and its net income by 154%. Intuitive Surgical should play a leading role in driving the healthcare industry forward as specialists increasingly turn to the benefits of robotics and automation.
The technology game
About 28% of S&P 500 He’s in tech stocks. And as technology becomes a bigger part of the American economy, it has also become a bigger part of people’s investment portfolios. People want different things from a tech stock. Some want hypergrowth. Others want industry leadership and stable free cash flow value. One of the few companies that has it all is Adobe (ADBE 4.37%).
Adobe is known as the brand behind the Creative Cloud software suite. In many ways, these apps are essential to marketing campaigns, film production, advertisements, graphic design projects, and all aspects of modern digital media. Adobe’s growth has slowed in recent years, but its free cash flow and net income make the company more profitable than ever. Adobe is a monstrous growth stock that could remain unstoppable for decades to come. Down 40% from its all-time high, Adobe is an excellent buy for investors looking for a company that demonstrates a balance of growth, free cash flow, and earnings.
10 companies you can count on
Investing in equal parts of the 10 stocks on this list gives the investor exposure to different sectors of the economy. It also provides a dividend yield of 1.6%, although three of the 10 stocks on this list do not pay dividends.
Each company on this list is a leader in its respective industry. All 10 companies are also profitable, generating considerable free cash flow that can be used to pay dividends, buy back shares, or reinvest in the business. When times get tough, it’s important to have companies you can count on by your side. Regardless of what the economy or market throws at you, there’s reason to believe you can rely on the long-term success of the 10 companies on this list.