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3 Stocks I Want to Buy If the Market Sell-Off Intensifies

By Matthew DiLallo – Updated Sep 6, 2020 at 11:07AM

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This Fool is checking his list twice, in case stocks get cheaper.

The stock market took a nasty spill this week. After notching a new record high on Wednesday, major indexes tumbled on Thursday, with the Nasdaq plunging 5%. That sell-off continued on Friday.

While sell-offs aren't fun, they can be rewarding if an investor has cash on the sidelines to invest. That was the case earlier in the year as I went on a buying binge when the market melted down as COVID-19 shut down the global economy. Since then, I haven't bought too much as the market rocketed higher, instead opting to keep cash on the sideline for the next sell-off.

That event might have finally arrived. If that's the case, I'm ready to start buying again. Three names near the top of my list are renewable energy producer Clearway Energy (CWEN -3.13%) (CWEN.A)utility NextEra Energy (NEE -1.22%), and industrial REIT Prologis (PLD 0.06%). Here's why.

A person looking at a stock market chart going down.

Image source: Getty Images.

High-powered dividend growth ahead

I was able to scoop up some shares of Clearway Energy earlier this year as part of a plan to build out a basket of renewable energy stocks. However, since then, the stock has been in rally mode, surging nearly 20% on the year, and even further from its bottom. I've been reluctant to buy more, hoping to get a better price eventually.

One reason I would love to add more of this renewable energy company to my portfolio is its dividend growth prospects. Clearway has already given investors a monster raise and expects to deliver high-end dividend growth next year and steady increases beyond that. Powering that plan is an extensive pipeline of investment and acquisition opportunities as it builds out its portfolio of cash-flowing renewable energy assets. While that upside makes shares a solid buy at the current price, I'm cheap, which is why I'd rather wait to see if I can scoop up more at an even better value. That could finally happen if the market sell-off intensifies.

In a class of its own

I also bought some shares of NextEra during the market sell-off earlier this year. However, with the stock rallying 15% this year, and much further off its bottom, I haven't picked up any more of them since it tumbled in March. I would love to buy another helping if we got a big sell-off.

Powering my desire to increase my exposure to this utility is its top-notch financial profile and growth prospects. On the financial side, NextEra has a conservative dividend payout ratio (60%, versus the 65% average of its peer group) and one of the highest credit ratings in the utility industry. Meanwhile, the company expects to grow its earnings by at least 8% per share through 2022, one of the best rates in the sector. Those two factors should enable the company to expand its dividend by around 10% per year during that timeframe. One factor driving that growth is the company's renewable energy business, which is already the largest in the world and on track to nearly double over the next few years. With so much going for it, I wouldn't hesitate to add more shares if the stock got caught up in a market sell-off. 

Well-located real estate

Shares of logistics REIT Prologis are up about 13% this year, bucking the REIT sector's downward trend. That's a justifiable rise since Prologis is having an excellent year as its properties are in high demand by e-commerce companies. Its funds from operations are on track to grow 12.5% this year, which will enable it to cover its 2.3%-yielding dividend with $1 billion to spare. 

With shares rallying, Prologis currently trades at about 27 times its FFO, which is quite a bit higher than most REITs. While that's a justifiable price given its top-tier financial profile and growth prospects, I'd still like to see if shares get cheaper. If they do, I plan on adding this top-notch REIT to my portfolio.

Waiting around for the next buying opportunity

While I'm always buying stocks, I tend to get much more active when the market takes a nosedive since that's often when some bargains emerge in high-quality companies. That's why I'm keeping an eye out during the current sell-off for opportunities to buy shares of companies I really like. At the moment, I'm hopeful that I'll get a chance to pick up shares of Clearway Energy, NextEra Energy, and Prologis at great prices so that I can potentially earn even better long-term returns as they keep creating value for their investors.

Matthew DiLallo owns shares of Clearway Energy, Inc. and NextEra Energy. The Motley Fool recommends NextEra Energy. The Motley Fool has a disclosure policy.

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Stocks Mentioned

NextEra Energy, Inc. Stock Quote
NextEra Energy, Inc.
$82.52 (-1.22%) $-1.02
Prologis, Inc. Stock Quote
Prologis, Inc.
$108.60 (0.06%) $0.06
Clearway Energy, Inc. Stock Quote
Clearway Energy, Inc.
$34.62 (-3.13%) $-1.12
Clearway Energy, Inc. Stock Quote
Clearway Energy, Inc.

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