In this article, we discuss the 11 best bear market stocks to invest in. If you wish to skip our detailed analysis of bear market stocks and the current market situation, go directly to 5 Best Bear Market Stocks To Invest In.
A bear market is a situation where a benchmark index, like the S&P500 or the Nasdaq Composite, or even some individual stocks, lose 20% or more of their value for a sustained period of time, or in comparison to recent highs. The US market has been flirting with bear market territory for a while now, and the S&P500 is down 13.80% in the year to date, while the Nasdaq Composite has lost 23.82% so far in 2022.
On the back of rising inflation, interest rate hikes and supply chain problems emanating from China’s Covid lockdowns, experts fear more bad times await the economy. The Chief U.S. economist at Deutsche Bank, Matthew Luzzetti recently said:
“We see a very narrow path forward to achieve a soft landing and continue to anticipate a mild recession around the end of 2023.”
Some mega stocks suffer the same way as the larger market during a downturn. Companies such as Apple Inc. (NASDAQ:AAPL), Alphabet Inc. (NASDAQ:GOOG) and Amazon.com, Inc. (NASDAQ:AMZN) are down 19.71%, 19.34% and 26.77% in the year to date, respectively, as part of the broader sell-off in tech. And during these times, investors turn towards ‘defensive stocks’, which are companies primarily from the financials, energy, and consumer goods segments. These firms sell products/services that enjoy demand which is immune from the effects of a market downturn, and often offer sustainable dividend yields, making them lucrative to hold for income investors. Given all this uncertainty in today’s economic climate, investors would be wise to consider some value-oriented stocks to prop up their portfolios with some good defense.
Image by Gerd Altmann from Pixabay
Our Methodology
We picked 11 stocks which offer investors stability during the current market volatility. A majority of these stocks also boast an impressive track record of paying consistent dividends. To gauge the popularity of each stock among professional money-managers, we’ve provided readers with hedge fund sentiment which has been calculated using Insider Monkey’s Q1 database of 912 elite hedge funds.
Best Bear Market Stocks To Invest In
11. Dollar Tree, Inc. (NASDAQ:DLTR)
Number of Hedge Fund Holders: 40
Dollar Tree, Inc. (NASDAQ:DLTR) was one of the best performing stocks during the market crash of 2008, returning 64% in the year which saw global markets plummet. It operates a network of discount stores across the United States under the Dollar Tree and Family Dollar brands. The company is expected to post outsized gains in the current inflationary environment, where the reduced spending power of consumers forces them to switch from pricey brands to cheap alternatives. As of June 7, shares of Dollar Tree, Inc. (NASDAQ:DLTR) have surged 59.69% in the last 12 months, and 13.52% so far in 2022.
On May 31, Citi analyst Paul Lejuez kept a ‘Buy’ rating on Dollar Tree, Inc. (NASDAQ:DLTR) shares, and raised the price target to $190 from $162, after the firm beat Q1 expectations by a wide margin and raised guidance. Deutsche Bank analyst Krisztina Katai also has a ‘Buy’ rating on Dollar Tree, Inc. (NASDAQ:DLTR) shares, along with a $181 price target.
For Q1 2022, Dollar Tree, Inc. (NASDAQ:DLTR) posted an EPS of $2.37, exceeding analysts’ predictions by $0.39. Revenue of $6.9 billion for the quarter also beat Street estimates by $137.5 million.
A study of the 912 hedge funds in the Q1 database of Insider Monkey showed that 40 hedge funds owned $3.56 billion worth of positions in Dollar Tree, Inc. (NASDAQ:DLTR). Many hedge funds significantly increased their stakes in the firm during the first quarter, and its largest shareholder was Mantle Ridge LP with a $1.82 billion stake.
Here is what Broyhill Asset Management had to say about the market position and prospects of Dollar Tree, Inc. (NASDAQ:DLTR) in its Q4 2021 investor letter:
“Our short-term trade in Avis was unusual for our long-term investment approach, but occasionally the market figures out mispricing sooner than later, and when it does, we are more than happy to take our chips off the table and wait for the next opportunity.
Our investment in Dollar Tree, which we’ve held for nearly five years, is more representative of our typical time horizon and investment philosophy, which seeks mispriced assets with minimal downside and the potential to double our capital over 3-5 years. Those doubles rarely play out as quickly as the surge in rental car pricing. Just last quarter, we highlighted Dollar Tree as a top detractor
after the company issued weak guidance due to rising cost pressure. Investors were rightly frustrated after years of management missteps and false starts following the acquisition of Family Dollar.At some point, we hoped, sentiment would be just right. While the timing of that scenario is impossible to predict, we increased our position in September as shares traded back towards our original 2017 purchase price. At month end, the board increased Dollar Tree’s existing share repurchase authorization to $2.5 billion, representing~ 13% of the company’s then market capitalization, initiating a dramatic shift in investor sentiment. Management also announced that it was on track to have 500 Dollar Tree Plus stores by fiscal year-end, with another 1,500 stores planned for FY22 and at least 5,000 expected by FY24. In addition, management highlighted the success of the company’s Combo Stores (which include both Dollar Tree and Family Dollar banners), noting sales and gross profit increases greater than 20% and 30%, respectively. While there are only 105 existing Combo Stores, management expects to add 400 more in FY22, with the potential for up to 3,000 over the next several years.
In our experience, big gains often come after years of meager performance. Patience truly is a virtue in this business, as successful investing requires confidence in your research and analysis, even when the market disagrees with you for what may seem like an eternity. In this case, after holding Dollar Tree for half a decade, shares nearly doubled, gaining 77% in the two months following that management announcement. Despite recent gains, we continue to hold our investment as consensus estimates have yet to catch up to the likely inflection in earnings power from higher price points. And with the guidance of Richard Dreiling, the former Dollar General CEO, credited with turning around DG in the early part of the last decade, we think the odds of successful execution have increased materially.”
Just like The Coca-Cola Company (NYSE:KO), CVS Health Corporation (NYSE:CVS), and The Procter & Gamble Company (NYSE:PG), Dollar Tree, Inc. (NASDAQ:DLTR) is one of the best stocks to buy during a market downturn.
10. The Coca-Cola Company (NYSE:KO)
Number of Hedge Fund Holders: 64
The Coca-Cola Company (NYSE:KO) is up next on our list of the best bear market stocks to invest in. It is a Dividend King, boasting 59 consecutive years of dividend increases and a 2.80% yield as of June 7. Guggenheim analyst Laurent Grandet on April 26 gave The Coca-Cola Company (NYSE:KO) a ‘Buy’ rating, seeing it as the best placed company in the food and beverage space to navigate high inflation due to its brands’ pricing power. The analyst increased his price target to $71 from $68.
For Q1 2022, The Coca-Cola Company’s (NYSE:KO) EPS stood at $0.64, above Street estimates by $0.06. Revenue of $10.5 billion for the quarter was also above analysts’ predictions by $670.8 million and showed an increase of 16.44% from the year-ago quarter. In the last 12 months, The Coca-Cola Company (NYSE:KO) has posted returns of 12.19% as of June 7.
Out of all the hedge funds tracked by Insider Monkey, 64 held positions in The Coca-Cola Company (NYSE:KO) with a combined value of $29.17 billion. This is in comparison to 70 hedge funds a quarter earlier with $28.61 billion worth of stakes in the beverage firm. Warren Buffett’s Berkshire Hathaway has been a longtime investor in The Coca-Cola Company (NYSE:KO), and currently ranks as its top shareholder with 400 million shares valued at $24.79 billion.
ClearBridge Investments, an asset management firm, mentioned many stocks in its Q4 2021 investor letter, and The Coca-Cola Company (NYSE:KO) was one of them. Here’s what the fund said:
“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We added to more defensive areas of the portfolio like consumer staples (Coca-Cola). While the next month or two will likely prove choppy on account of the Omicron variant, we believe that Omicron, like Delta, represents a speed bump on the way to recovery rather than a true change in course. We see strong economic momentum continuing in 2022 and we expect interest rates to rise. After a decade of remarkably low rates, we would not be surprised if this change in direction is accompanied by some fits and starts in the markets. With our emphasis on pricing power, purposeful sector exposure, valuation discipline, and a strong dividend profile, we believe we are well-positioned for the year ahead.”
9. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 66
Devon Energy Corporation (NYSE:DVN) is an Oklahoma-based energy company which deals in the development and production of oil, natural gas and natural gas liquids across the United States. The company returned 28.8% during the month of May 2022, and ranked among the top two monthly performers in the S&P500. On the back of rising energy prices, the company has risen 69.08% in the year to date as of June 7.
Raymond James analyst John Freeman on May 9 maintained a ‘Strong Buy’ rating on Devon Energy Corporation (NYSE:DVN) shares and raised the price target to $90 from $85. Freeman sees the company’s strong balance sheet, shareholder-friendly return structure, and a deep drilling inventory making it well-positioned going forward, and rates it among his top picks in the energy and production sector.
For the first quarter of 2022, Devon Energy Corporation (NYSE:DVN) disclosed earnings per share of $1.88, exceeding estimates by $0.12. Quarterly revenue stood at $3.81 billion, outperforming analysts’ predictions by $215.9 million and representing an impressive 116.4% growth in comparison to the year-ago quarter. As of June 7, the company also pays a solid dividend yield of 6.59%, and boasts 4 consecutive years of dividend increases.
Investors were seen loading up on Devon Energy Corporation (NYSE:DVN) shares. 66 hedge funds reported ownership of $1.92 billion worth of positions in the energy firm at the end of March. This is in comparison to 51 hedge funds a quarter earlier with $1.74 billion worth of stakes in the company. Devon Energy Corporation’s (NYSE:DVN) largest Q1 shareholder was GQG Partners, with a stake consisting of 15.03 million shares valued at $888.6 million.
8. Bristol-Myers Squibb Company (NYSE:BMY)
Number of Hedge Fund Holders: 70
Bristol-Myers Squibb Company (NYSE:BMY) is a New York-based biopharmaceutical giant. It pays a stable dividend yield of 2.87% as of June 7, and has increased its payout to shareholders for 15 years in a row.
On June 6, BofA analyst Geoff Meacham kept a ‘Buy’ rating on Bristol-Myers Squibb Company (NYSE:BMY) shares and raised the price target to $80 from $78. The company has announced plans to acquire clinical-stage precision oncology company Turning Point (TPTX) for $4.1 billion in cash, and the analyst notes that this is a strategic pivot as the company continues to expand its early cycle portfolio, which could reach up to 10 launches with the approval of Turning Point’s repotrectinib drug in 2023.
For the quarter ending March, Bristol-Myers Squibb Company (NYSE:BMY) reported earnings per share of $1.96, beating analysts’ estimates by $0.07. Quarterly revenue also beat consensus estimates by $308.4 million, coming in at $11.65 billion.
Hedge fund sentiment was up on Bristol-Myers Squibb Company (NYSE:BMY) at the end of the first quarter, where 70 hedge funds reported bullish bets on the company shares, as compared to 66 hedge funds a quarter earlier. Two Sigma Advisors was the largest shareholder of Bristol-Myers Squibb Company (NYSE:BMY) in the first quarter of 2022, with a position consisting of 4.36 million shares worth $318.4 million.
7. CVS Health Corporation (NYSE:CVS)
Number of Hedge Fund Holders: 72
CVS Health Corporation (NYSE:CVS) is next on our list of the best bear market stocks to buy. It operates a network of retail pharmacies and clinics across the United States. As of June 7, the company shares have surged 10.88% in the last 12 months.
For the first quarter, CVS Health Corporation (NYSE:CVS) posted an EPS of $2.22, beating Street estimates by $0.08. The company raked in $76.8 billion in revenue for the quarter, outperforming analysts’ predictions by $1.53 billion.
Tigress Financial analyst Ivan Feinseth in April reiterated a ‘Buy’ rating on CVS Health Corporation (NYSE:CVS) shares, and increased the price target to $125 from $122. The analyst assessed that the firm’s ongoing evolution towards becoming a customer-centric, full-service healthcare solutions provider has led to strong quarterly results. He holds a long-term bullish view on CVS, with its primary care focus combined with an extensive retail store and services network.
Of the 900+ elite hedge funds tracked by Insider Monkey, 72 reported long bets on CVS Health Corporation (NYSE:CVS), with combined positions worth $1.56 billion. This is in comparison to 71 hedge funds a quarter earlier. Harris Associates was the biggest shareholder of CVS Health Corporation (NYSE:CVS) at the end of the first quarter, with a stake worth $421 million.
Here is what investment firm ClearBridge Investments had to say about CVS Health Corporation (NYSE:CVS) in its Q4 2021 investor letter:
“Improving health remains a key impact theme for the portfolio, and over the past year or so we have increased our exposure to the health care sector, through the addition of CVS Health, which is well-positioned to help define the future of health care in terms of costs, quality and convenience.”
6. The Procter & Gamble Company (NYSE:PG)
Number of Hedge Fund Holders: 72
The Procter & Gamble Company (NYSE:PG) is a consumer goods giant which operates through its segment Beauty, Grooming, Health Care, Fabric & Home Care and Baby, Feminine & Family Care. It ranks as one of the best defensive stocks to buy given its versatile portfolio of products that are considered everyday necessities by consumers around the globe. The Procter & Gamble Company (NYSE:PG) is also considered a dividend king, with 65 consecutive years of dividend increases and a 2.51% yield as of June 7.
On June 1, Deutsche Bank analyst Steve Powers maintained a ‘Buy’ rating on The Procter & Gamble Company (NYSE:PG) shares, and slashed the price target to $171 from $177. After a recent streak of outperformance within a difficult macro backdrop laced with supply, consumer and cost challenges, the analyst feels that the US consumer products space is “at a critical juncture” and that something “has to break.”
The Procter & Gamble Company’s (NYSE:PG) posted an EPS of $1.33 for the first quarter, which came in above analysts’ forecasts by $0.04. The revenue for the first quarter was reported at $19.4 billion, also outperforming estimates by $687.8 million.
Investors were keen on The Procter & Gamble Company (NYSE:PG) shares at the close of the first quarter, where 72 hedge funds were stakeholders in the company, as compared to 67 hedge funds in the preceding quarter. The company’s largest Q1 shareholder was GQG Partners, which held 9.91 million shares worth $1.51 billion.
In addition to The Coca-Cola Company (NYSE:KO), CVS Health Corporation (NYSE:CVS) and Dollar Tree, Inc. (NASDAQ:DLTR), The Procter & Gamble Company (NYSE:PG) ranks as one of the best bear market stocks to buy.
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