The Best Stocks for Pessimists

The markets keep patting themselves on the back. The Dow Jones Industrial Average  (DJINDICES: ^DJI  ) is up more than 17% for the year. But for some reason, you feel like an outsider. You look at the investors celebrating all-time highs and feel as if you weren't invited to the party. As you sit in your dark, lonely den, where can you invest in order to reap the rewards of the impending market correction you've been grumbling about?

Here are some of the best stocks for that sort of bearish attitude.

Resilient resources
While weakness in fertilizer markets hurt Sociedad Quimica y Minera (NYSE: SQM  ) this year, higher sales volume and margins in other businesses helped the company grow earnings 19% over 2012. Sociedad has a hand in many industrial resources, from iodine to lithium, and it boasts healthy double-digit profit margins. It is also expanding its production capacity to keep up with a world hungry for more fertilizer-based food and lithium-based batteries. Still, the company failed to meet recent expectations and has missed the market rally this year. If markets get spooked and head downward, investors could find peace of mind in the intrinsic value of Sociedad's physical resources, as well as its 2.6% dividend yield.

The Chinese Google
Even though Baidu (NASDAQ: BIDU  ) lost a few percentage points of online-search market share in China, it still captures 70% of search traffic. Because of market-share pessimism, the stock is slightly negative for the year and trades at a P/E ratio of 20, a valuation last seen around 2009. Earnings in the latest quarter were depressed due to investments in marketing and research and development, which bodes well for long-term shareholders, who will reap the rewards of such forward thinking. Given a market reset, Baidu's dominant moat and 40%-plus profit margins could attract weary investors.

The final pick
Finally, Apple  (NASDAQ: AAPL  ) has run in the opposite direction of the market, down about 17% for the year. The market now avoids the once-cherished portfolio holding since sentiment for the company's future turned negative, but it makes a good pick that would hold its own if there were a broad market drop. Apple is the best-performing retailer in the U.S., with average per-store revenue of $13 million. While it has a small footprint in the faltering computer business, it pioneered the tablet, which is gobbling up PC market share. The iPhone continues to take market share as well. If investors get skittish, its 2.7% dividend yield will make it look like a comfy place to weather a market correction.

Rose-colored glasses
The New Yorker's James Surowiecki argues that the market's rally is real, especially given low corporate taxes, high foreign profits, and weak labor markets. He believes reversion to the mean doesn't mean much, given how things have changed over time: "The underlying issue is that in recent decades there's been a shift in the U.S. economy: it's become far more congenial to businesses and investors. The fundamental trends that have driven the profit boom are unlikely to be reversed." But Surowiecki could be mistaken. Governments could reassess corporate taxes, and labor could demand higher wages -- or market sentiment could change with the wind.

If you don't believe in the hype, take a look at the options above as the best stocks for pessimists such as yourself. Even if such a market correction never comes, these stocks could still outperform going forward.

Is Baidu a buy?
For an in-depth look at the opportunity within Baidu, check out The Motley Fool's brand-new premium report, which breaks down the dominant Chinese search-provider's strengths and weaknesses. Just click here to access it now.

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  • Report this Comment On May 23, 2013, at 7:35 AM, jdmeck wrote:

    After what happened yesterday, we need no more proof that this is all smoke and mirrors. Get out while you can.

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Related Tickers

9/28/2016 2:38 PM
^DJI $18310.48 Up +82.18 +0.45%
AAPL $113.90 Up +0.81 +0.72%
Apple CAPS Rating: ****
BIDU $187.26 Down -3.57 -1.87%
Baidu CAPS Rating: *****
SQM $26.93 Up +0.90 +3.44%
Sociedad Quimica y… CAPS Rating: ****