It may sound silly, but companies are kind of living, breathing beings with the employees acting like individual cells in a body. And some companies are just foundationally different and better than their peers because of the way they are run over time. It's in their DNA, if you will. Sure, fortunes ebb and flow, but on the whole these strong businesses are always still striving to improve.
That's why it's only in bear markets that you tend to get a good deal on the shares of Nucor (NUE 1.34%), Procter & Gamble (PG -0.24%), and Hormel (HRL -0.95%). Let's take a closer look at these companies and why they're so well-run.
1. Prudence and a dedicated team
Nucor's long-term success is best highlighted by the fact that it has increased its dividend annually for 48 consecutive years. That makes it a Dividend Aristocrat, a highly elite collection of companies. What's fascinating here is that Nucor makes steel, which is a highly cyclical industry. That puts an even more impressive spin on its dividend record.
Image source: Getty Images.
So what sets Nucor apart from its peers? For starters, the company is fiscally conservative with a debt-to-equity ratio that generally sits at the low end of its peer group. That gives it the flexibility to make capital investments in both good markets and bad, which helps ensure it is always becoming a better company.
There are also more fundamental reasons for its success, namely its technology. The business uses highly flexible electric arc mini-mills that can better adjust to market conditions than older blast furnaces. So Nucor's margins tend to be high throughout the entire business cycle.
Then there's one more nuance. Nucor makes heavy use of profit-sharing in its pay structure. This ensures that its employees make more money when times are good, and gives Nucor a break on the pay front when times are bad. It also incentivizes employees to ensure that Nucor is always operating at its best -- something that really gives it an edge over its peers.
Nucor isn't cheap often, but when it is, investors should jump aboard.
2. Earning the purchase
Procter & Gamble has an even more impressive dividend record than Nucor, given that it has increased its dividend annually for 65 consecutive years. That makes it a Dividend King, an even more elite club than the Dividend Aristocrats.
This consumer staples company has gone through tough times, but it always seems to come out stronger in the end. That's partly because its products, which include toilet paper, razor blades, and laundry detergent, get used on a regular basis. Indeed, these are pretty much basic necessities.
However, there's a bigger issue here, because Procter & Gamble generally sells premium-priced products. You could easily trade down and buy the store brand of just about everything it makes. And yet consumers don't tend to do so. They buy P&G's iconic brands and stick with them for multiple reasons, including marketing prowess and distribution strength.
It's also because management has long focused on innovation to ensure that the products it offers deserve to be in a customer's shopping cart. The Swiffer brand of floor mops is a great example. Sure, there are knock-offs, but P&G basically created the product category and is the dominant name. In other areas like paper towels, it works to ensure that Bounty is the highest-quality competitor.
Always focusing on the top spot is what keeps Procter & Gamble ahead of the pack, and usually trading at a premium price. When the market corrects, assuming it takes this stock with it, you'll want to consider adding it to your portfolio.
PG Dividend Yield data by YCharts
3. Actually on sale now
Hormel kind of breaks the mold here because its dividend yield is historically high right now. That suggests that investors can get a decent price today -- and might want to use the opportunity to buy it now. However, if the market drops, there's a good chance it will get even cheaper. Note that like Procter & Gamble, Hormel is a Dividend King.
What makes Hormel distinctive is that it has a long history of owning and successfully operating iconic food brands, including names like Spam, Planters, and its namesake Hormel products. In fact, the food maker is probably best looked at as a brand manager with a protein focus. It has a portfolio of No. 1 and No. 2 brands in their categories that spans across the grocery store.
And with the recent addition of Planters, it is increasing its reach into the convenience arena with yet another industry leader. This is notable because Hormel has increasingly used acquisitions to add new brands, and then made them even better through innovative new offerings. In addition, it has a direct sales force that supports the food services industry.
The stock is relatively cheap right now, probably because of elevated inflation as well as the debt it took on to acquire Planters. But don't get too upset about either. Hormel's debt-to-equity ratio is still a very reasonable 0.5, and the company has a history of paying down debt after it buys new brands. As for inflation, it is a fact of life in the food industry with rising costs eventually passed on to consumers via price hikes.
That said, if you still want a better price, then put this powerful brand manager on your wish list for the next market dislocation and enjoy the benefits as it innovates its way to growth.
Patience pays off
Great companies don't go on sale very often, so you have to wait for the right time to buy. Market downturns generally provide a great opportunity to put your money into the best names since investors have a habit of tossing the baby out with the bathwater when they are frightened.
Although Hormel looks like it is on sale right now, it could still get even cheaper in a downturn. Nucor and Procter & Gamble, meanwhile, are great companies trading at premium prices at the moment. But all three deserve to be on your wish list for the next bear market, which will likely put all of them on the Wall Street sale rack.
