Over the past three months, Wall Street and investors have been taken on quite the roller-coaster ride. Beginning in late February, we witnessed the broad-based S&P 500 endure the fastest descent into bear market territory in history -- it took a little over three weeks.
Furthermore, over a stretch of 33 calendar days, panic surrounding the coronavirus disease 2019 (COVID-19) would push the benchmark index down 34%. This also marked the quickest 30% retracement (30 calendar days) from a recent high of all time.
With no concrete timeline as to when business activity will return to normal, there's a very real possibility that the U.S. economy will dip into its first recession in 11 years. While that's certainly not good news for investors in the very short term, it does offer a window of opportunity.
Every bear market correction in history has proved to be an excellent buying opportunity for long-term-minded investors. Even though we don't know how long a stock market correction will last or where the bottom might be, we do know that the S&P 500 has a perfect track record of putting bear markets into the rearview mirror over the long run. This means that if you buy businesses with game-changing potential at a discount during a bear market, you'll be setting yourself up to make a lot of money.
With that being said, here are three absolutely no-brainer bear market buys.
To begin with, don't let market-cap size be a deterrent when picking out great companies. Although Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), the company behind the Google search engine and YouTube video platform, is already one of the largest publicly traded companies, it offers plenty of expansion potential.
What folks are most familiar with when it comes to Alphabet is the Google search platform. According to GlobalStats, Google comprised 91.9% of global search market share in April 2020. This means it's the undisputed leader in internet search, and advertisers will seemingly bend over backwards to get prime placement.
As time goes on, Alphabet is liable to see its traffic-acquisition costs stabilize, while the amount advertisers pay to capture eyeballs will continue to climb. That's a scenario where operating margins expand over the long run.
However, the Alphabet growth story isn't just centered around advertising revenue on its search platform. YouTube has grown into one of the most-visited social platforms in the world, and its ad revenue totaled almost 10% of Alphabet's first-quarter sales, up from a little over 8% in the year-ago quarter.
Likewise, Google Cloud is delivering remarkable growth in its relatively early stages. Based on the $2.78 billion in first-quarter sales, Google Cloud is already extrapolating out to $11 billion in full-year sales, which is great news considering that cloud margins absolutely run circles around advertising margins. This means that as Cloud grows into a larger percentage of Alphabet's sales, cash flow and margin expansion should be expected.
Teva Pharmaceutical Industries
In recent years, Teva settled bribery charges, dealt with executive turnover, had its top-selling brand-name drug (Copaxone) lose exclusivity, ballooned its debt while buying Actavis, and has more recently been dealing with lawsuits from 44 states concerning its role in the opioid crisis. And yet, it's a solid buy for one big reason: CEO and turnaround specialist Kare Schultz.
Schultz was brought on in September 2017 to turn the ailing drugmaker around. Since taking the helm, he's reduced the company's annual operating expenditures by about $3 billion (a 16% reduction from before taking over) and lowered the company's net debt from north of $34 billion to about $24.3 billion by the end of March 2020. Schultz has accomplished this by selling off noncore assets, as well as using Teva's operating cash flow, which typically tops $2 billion a year, to pay down debt. He will remain at the helm until at least November 2023.
Additionally, Teva appears to have put most of the generic-drug pricing struggles that it contended with in 2018 and 2019 in the rearview mirror. While the company isn't exactly growing at a breakneck pace -- sales will likely increase by a low-single-digit percentage between 2020 and 2023 -- improved operating efficiency should lead to mid-single-digit earnings per share expansion over the same period. That makes its forward price-to-earnings ratio of 4 a deal that's too good for value investors to pass up.
Wheaton Precious Metals
I know what you might be thinking, and it's true: physical metals have greatly underperformed the broader stock market over the long term. That's why I'm not suggesting you buy into gold, silver, or palladium, but allow yourself to take advantage of leveraged plays like Wheaton Precious Metals that will directly benefit if these precious metals continue to appreciate in value.
At no point in the 21 years that I've been an investor can I recall physical gold having such a perfect setup for the next, say, 18 to 24 months. Global bond yields have plummeted, and central banks around the world are injecting money at a rapid pace to keep their economies from imploding. Nearly every catalyst you can think of favors higher gold prices. It also doesn't hurt that precious metals and miners tend to do their best at the tail end of a recession and the emergence of a new bull market.
More specific to Wheaton Precious Metals, it's able to provide upfront capital to mining companies in exchange for a percentage of what's produced. Wheaton then pays well-below market cost for the metals it receives and sells these products at market rates, pocketing the difference as profit. Since it's not involved in day-to-day mine upkeep, its margins tend to be among the highest in the mining industry.
Just how good are its margins, you ask? In the recently ended quarter, Wheaton reported a gold equivalent ounce average cash cost of $403. For context, gold closed at north of $1,750 an ounce this past week. Wheaton is set up perfectly to bring some serious luster to your portfolio.