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3 Stocks to Load Up on When the Stock Market Sells Off

Key Points

  • Brookfield Renewable is expensive now, making a sell-off an ideal time to buy.
  • Waste Management's steady business is a great one to grab when other investors are tossing it into the garbage bin.
  • As a cyclical stock, Nucor tends to sell off when the market tumbles and bounce back on a recovery.

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It's always good to be prepared for the next big stock market sell-off.

Volatility has returned to the stock market in recent weeks, pushing the S&P 500 down more than 5% below its all-time high at one point. While that's not a major sell-off, it's the biggest decline in almost a year. 

Bumps in the road like this are always a good reminder that sell-offs can come out of nowhere, which is why investors need to be prepared. One way to do that is to make a list of stocks you would want to buy the next time the market takes a dive. 

With that in mind, we asked three contributors what stocks they think investors should consider loading up on during the next big sell-off. Topping their lists were Brookfield Renewable Partners' (BEP -0.11%), Waste Management (WM -0.21%), and Nucor (NUE -2.08%)

A person looking at a stock market chart on a computer screen.

Image source: Getty Images.

A chance to get in on the cheap

Reuben Gregg Brewer (Brookfield Renewable Partners): When the markets started to tank in 2020 Brookfield Renewable Partners' units fell around 45%. Theyh quickly started to gain back some ground, hitting a new high-water mark in early 2021 before starting to drop again. The stock is down about 25% from that peak, but still looks historically expensive. If there's a market sell-off there's likely further room to fall, even after the current drop.

But there's a lot to like about Brookfield Renewable Partners, a master limited partnership, and its younger twin, corporate shares Brookfield Renewable Corp. (BEPC -0.10%). Roughly 50% of its revenue come from highly stable hydroelectric power. The rest is a mix of newer technologies, like solar and wind. Put simply, it's using the hydropower foundation to grow in newer areas. It's a great portfolio balance that distinguishes Brookfield Renewable from its peers.

BEP Dividend Yield Chart

BEP Dividend Yield data by YCharts

Then there's the dividend. The yield today is historically modest at roughly 3.2%, but the distribution has been increased annually for a decade (adjusting for the spin off of Brookfield Renewable Corp and a 3-for-2 stock split, both of which occurred in 2020). The annualized rate of increase over that span is a solid 6%. And management believes the growth can support 5% to 9% distribution growth for the foreseeable future. If the stock sold off, thus upping the yield, it would be a great way for income investors to add some renewable power to their portfolios. A 6% yield would be pretty incredible, but anything above 5% would probably be a good entry point given the growth potential in the renewable power space today.

A great dumpster diving stock

Matt DiLallo (Waste Management): Stock market sell-offs are often great opportunities for long-term investors. During a market panic, investors will often sell high-quality companies to raise cash to cover a margin call or reduce their exposure to the stock market. Because of that, investors with money to spare can scoop up some high-quality stocks that others are discarding.

One great stock to consider loading up on during the next market meltdown is Waste Management. The collections and recycling company operates a very stable business. Because of that, it generates lots of cash. That gives it the money to pay dividends, repurchase shares, and make acquisitions, all of which help grow value for its shareholders. For example, it generated more than $1 billion of cash from operations in the second quarter alone, driven by its Advanced Disposal acquisition and a rebounding economy from the early days of the pandemic. That led the company to increase its 2021 share repurchase outlook up to its full authorization of $1.35 billion. 

Given its success, Waste Management's stock has rallied along with the market over the past year, surging more than 30%, slightly outpacing the S&P 500. Because of that, it currently trades at a relatively high 30 times forward earnings. Moreover, its dividend yield is at a 10-year low of 1.5%. 

Given those numbers, it's not a screaming bargain right now. However, if the market sells off, investors can take advantage of the opportunity to load up on shares of a high-quality company that others are tossing aside. 

Look out for solid stocks the market overlooks

Neha Chamaria (Nucor): A market sell-off is often a great time to buy shares of cyclical stocks that take a beating but have clear-cut growth catalysts ahead. Nucor, for example, is the largest steel and steel products company in the U.S., which means its fortunes are tied closely to the health of the economy. However, freak market crashes like the one we saw in September can send the stock tumbling. If that happens again, you might want to give Nucor a serious look.

To begin with, Nucor is poised to benefit from any uptick in construction spending in the U.S. given its unparalleled foothold in the steel industry. Steel is a critical raw material for nearly all types of construction. While an infrastructure bill under the Biden administration could be a big growth catalyst, whatever spending local and federal governments are doing right now is already ringing Nucor's cash box -- it reported two straight quarters of record earnings, and looks well on its way for yet another bumper quarter.

Meanwhile, a drop in Nucor's stock price will also mean you can buy shares of a company that has increased its dividends for 48 consecutive years and will therefore send you regular dividend checks even in a rough year. Now that's an attractive proposition, and buying Nucor shares when the market tanks will mean you'd be buying one of the best infrastructure stocks out there for the long haul.

Reuben Gregg Brewer owns shares of Nucor. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.

Stocks Mentioned

Nucor Stock Quote
$149.80 (-2.08%) $-3.18
Waste Management Stock Quote
Waste Management
$165.21 (-0.21%) $0.35
Brookfield Renewable Partners Stock Quote
Brookfield Renewable Partners
$27.52 (-0.11%) $0.03
Brookfield Renewable Stock Quote
Brookfield Renewable
$30.81 (-0.10%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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