The stock market has corrected in recent weeks, declining more than 10% from its recent high. Some stocks are down even more. While the sell-off has been challenging, it has also provided long-term investors with some intriguing opportunities.
We asked three Fool.com contributors which market sell-off stocks they believe are smart buys right now. Here's why they think Brookfield Renewable Partners (BEP 3.51%), Clearway Energy (CWEN 2.47%) (CWEN.A 2.18%), and Ford Motor Company (F 0.39%) could rebound once the stock market correction ends.
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More clean growth ahead
Reuben Gregg Brewer (Brookfield Renewable Partners): So far in early 2022, Brookfield Renewable Partners is off by less than 10%. However, if you go back to early 2021 the shares are over 30% below their peak. This sell-off could be a bit overdone.
Brookfield Renewable Partners and its younger sister Brookfield Renewable Corp. (BEPC 2.90%), which both represent ownership in the same entity but have different tax considerations, offer a front-row seat to the ongoing growth in the clean energy space. The business is diversified geographically, with assets located around the world. It is diversified by energy source, with a large hydroelectric portfolio creating a foundation on which management is building out its solar and wind portfolio. And it is focused on dividend growth, targeting 5% to 9% annual disbursement increases. It has, as it is, lived up to that distribution goal, having increased the payout annually since 2010 (adjusted for the spinoff of Brookfield Renewable Corp.) at a compound annual clip of 6%.
But it's the future here that's most exciting, given the world's ongoing push toward green power. Notably, Brookfield Renewable Partners just agreed to buy Urban Grid, tripling Brookfield's U.S. renewable development pipeline. Although investors appear to have soured on this clean energy play, it is still capitalizing on the big-picture shift toward alternative energy sources. And you can collect a fairly generous 3.6% distribution yield while you wait for it take to advantage of this massive long-term growth opportunity.
A lower price = a higher dividend yield
Matt DiLallo (Clearway Energy): Shares of Clearway Energy are down about 15% from their most recent high. That sell-off comes even though the clean energy producer's long-term growth prospects have strengthened in recent months. Because of that, investors can grab shares of this clean energy company at a more attractive valuation. They can also lock in a higher dividend yield -- currently around 4.1% -- in the process.
Last fall, Clearway Energy agreed to sell its thermal business to private equity giant KKR (NYSE: KKR) for $1.9 billion. It will receive $1.3 billion in net cash proceeds to fund future growth. Clearway already has deals lined up for about half that cash, which will nearly offset all the lost income. Add in its other growth drivers, and the pro forma company expects to generate $1.90 per share of cash available for distribution (CAFD), a $0.05-per-share improvement from the prior level. With Clearway's shares recently falling to around $33, it trades at roughly 17 times CAFD. That's a reasonable price to pay for a company with Clearway's long-term growth potential.
Meanwhile, Clearway believes it can find enough attractive opportunities to put the rest of that cash to work. It estimates that those future investments will boost its CAFD to $2.15 per share. That puts its valuation closer to 15 times forward CAFD at the current price.
That growing cash flow also gives Clearway a clear line of sight to grow its dividend. It's now targeting dividend increases in the upper end of its 5% to 8% annual growth target range through 2026. Meanwhile, it should have plenty of power to continue growing its CAFD and dividend in the future, given the investment needed to reduce carbon emissions and lessen the potential impact of climate change.
The sell-off in Clearway Energy has it trading at a cheaper valuation and higher dividend yield. Add that to its growth prospects, and it looks like a smart stock to scoop up during the current stock market correction.
The one EV stock you can't ignore
Neha Chamaria (Ford Motor Company): After a stunning rally in 2021, Ford appears to be testing investors' patience this year. Shares of the automotive giant have plummeted nearly 30% since mid-January, as of this writing. To top the broader market sell-off triggered by fears of rising interest rates, Ford's just-released fourth-quarter numbers left investors disappointed after the company's earnings missed analysts' estimates.
I'd consider this sell-off the stock market's short-sightedness because it's evidently focused on the few challenges Ford is facing (such as semiconductor chip shortage) instead of the big things Ford has lined up for 2022 and beyond. In fact, Ford bumped up its outlook and now expects its adjusted earnings before interest and tax (EBIT) to jump 15% to 25% in 2022. Strangely, the market seems to have ignored this, as well as Ford's optimism about 2022 driven by solid demand for its new vehicles, especially the all-electric version of its F-150 pickup truck that has also been America's best-selling truck for several decades now. Ford will start delivering F-150 Lightning pickup trucks this year, and is so overwhelmed with preorders that it's doubling production capacity. Meanwhile, demand for Ford's electric SUV Mustang Mach-E continues to soar.
Investors only have to look at Ford's latest sales numbers to get a glimpse into its growth. In the month of January, Ford's electric vehicle (EV) sales shot up 167.2% year over year, and its total new retail vehicle orders hit a record 90,000 units in the month. Ford also launched a new model, the Bronco Raptor SUV, in January. With so much happening, it could only be a matter of time before Ford stock rebounds as it strives to ace the red-hot EV game.
