A Short-Term Dip Is a Great Time to Consider Buying These Long-Term Stocks

Why Bed Bath & Beyond, EOG Resources, and Johnson & Johnson are great stocks to buy when the market catches its breath.

Keith Speights
Keith Speights, Timothy Green, and Matthew DiLallo
Jun 20, 2017 at 5:43PM
Health Care

Bulls continue to bellow on Wall Street, with the stock market keeping up its winning ways. Sooner or later, though, stocks will inevitably take a breather.

We asked three Motley Fool contributors which stocks they would recommend investors consider when the market pulls back a bit. Here's why they selected Bed Bath & Beyond (NASDAQ:BBBY), EOG Resources (NYSE:EOG), and Johnson & Johnson (NYSE:JNJ) as great long-term stocks to buy in a short-term dip.

Man pointing to dollar signs

Image source: Getty Images.

Betting against the retail apocalypse

Tim Green (Bed Bath & Beyond): Shares of Bed Bath & Beyond have been in decline for about two-and-a-half years. The stock is down more than 50% since the beginning of 2015, with investors rightfully concerned about the retailer's ability to compete in the age of e-commerce. Bed Bath & Beyond's gross and operating margins have been slumping for years, and net income has dropped 34% since fiscal 2013.

Despite the steep drop in earnings, Bed Bath & Beyond still produces a high-single-digit operating margin. The pessimism surrounding the stock has pushed shares down to just 7.75 times last year's earnings. The company does expect per-share earnings to drop by as much as 10% this year, so the stock isn't quite as cheap as it looks. But it is still highly profitable.

The narrative that online retail will decimate brick-and-mortar retail has created some bargains, although investors need to tread carefully. There are plenty of weak retailers that likely won't survive as a greater portion of sales shift online. Bed Bath & Beyond is so far a survivor, and it may even benefit from the shuttering of some of its competitors. For investors looking to profit from retail pessimism gone too far, Bed Bath & Beyond is a stock to consider.

A premium oil company with a price tag to match

Matt DiLallo (EOG Resources): Despite climate change worries and rapidly growing renewable energy resources, global oil demand isn't expected to stop rising until 2040. Because of that, it appears that there's still plenty of growth left in the tank for oil companies. In fact, leading shale driller EOG Resources anticipates that it can grow its oil output by 15% to 25% annually through 2020 as long as oil remains between $50 and $60 per barrel. That's a remarkable growth rate for a company of its size, especially considering that most rivals can't grow that fast at those oil price levels. 

Unfortunately for investors, that premium growth potential at lower oil prices results in EOG selling for a premium price compared to rivals. In fact, even though crude oil is down 4% over the past year, EOG Resources' stock is up almost 10%. Meanwhile, most rivals have slipped along with crude prices.

Shale drilling

Image source: Getty Images.

While EOG Resources enjoys a well-deserved premium valuation, that price tag will likely turn off many investors. That's why value-conscious investors should be hoping for a sell-off in EOG's stock because it means that they could pick up this top-tier oil stock for a less lofty price. It's a situation that could enable them to earn excellent long-term returns if EOG grows as fast as it expects in the years ahead.

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Like betting on growth in healthcare 

Keith Speights (Johnson & Johnson): Any time is a good time to buy Johnson & Johnson stock. But if you can scoop up shares of J&J at a lower price in the midst of a dip, that's even better. In a real sense, buying Johnson & Johnson is like betting on growth in healthcare. 

No other company that I can think of has a broader reach throughout the full healthcare spectrum than Johnson & Johnson. The company sells consumer healthcare products like Band-Aid and Tylenol. It sells a wide range of medical devices to hospitals. J&J markets some of the top-selling prescription drugs in the world, including nearly a dozen blockbuster drugs.

Buying J&J stock during a dip also makes its dividend even sweeter. The dividend currently yields 2.52%. If the share price was lower, the yield would be even higher. You don't have to worry about the dividend being cut, either. Johnson & Johnson has raised its dividend for 54 consecutive years.

Are there risks with J&J? Sure. The company operates in some pretty competitive markets. Like all drugmakers, J&J faces challenges any time one of its drugs loses exclusivity and competitors begin to chip away at market share. The company is dealing with that scenario for autoimmune disease drug Remicade now. 

Over the long run, though, Johnson & Johnson is the kind of stock you'd want to have in your portfolio. As I said earlier, it's like betting on growth in healthcare. I think that's a safe bet.