From U.S. inflation that is at its highest level in 40 years to supply-chain bottlenecks, semiconductor shortages, and the Russian invasion of Ukraine, we are indeed living in interesting times. As a result, the market has slumped thus far in 2022 and also delivered some sharp swings as investors remain uncertain if a recovery or a deeper crash is imminent.
Regardless of market conditions, every investor ought to have a wish list of stocks they'd buy if their valuations were more favorable. But in times of market turmoil, it's particularly wise to keep an eye on that list, because in a general slump, even solid companies can go on sale.
With that in mind, I view these three companies as some of the most strategic plays an investor could make at this time.
Source: Getty Images
Apple
It has often been said that there has never been a wrong time for long-term investors to buy Apple (AAPL -0.75%). The tech powerhouse has handily beaten the S&P 500 over periods of 10 years, five years, three years, and one year. And even thus far in 2022, as the tech sector broadly has sold off, Apple has lost slightly less than the S&P 500.
Of course, past performance does not guarantee future results. But if an investor wants to gauge a stock's potential, its financial results offer the best indicators, and Apple's performance has been impressive. For its fiscal 2021 (which ended Sept. 25), the company posted $365.8 billion in net sales. That was up 33% over fiscal 2020. Its net sales from fiscal 2019 through 2021 grew at a compound annual rate of 19%. This is especially noteworthy given the massive scale of the company.
Even more impressive, Apple's operating income rose 64% in fiscal 2021 to $108.9 billion. This gave it a stellar operating margin of nearly 30%.
Data Source: Apple. Chart by author.
There are several other reasons that Apple is a quality pickup during a market sell-off. First, Apple pays a small but growing dividend. While the yield at its current share price is less than 1%, management has raised the payout for nine straight years. By buying and holding, an investor's effective yield will rise along with the dividend.
Apple also returns substantial capital to shareholders through stock buybacks, which reduce the number of shares on the open market -- thus, increasing the value of each remaining share and boosting earnings per share (EPS). In its fiscal 2021 alone, the company spent $85.5 billion on buybacks, reducing the number of shares outstanding by 3%, and the company has shown no sign that it intends to cut back on its share repurchases.
There are also rumors that Apple will be releasing its much-anticipated augmented-reality (AR) and virtual-reality (VR) headset soon. This foray into the metaverse could give the company another significant revenue stream. With or without this exciting release, though, the future is bright for Apple shareholders, and any considerable dip in the stock price represents a buying opportunity.
O'Reilly Automotive
Another smart way to capitalize on a market sell-off is to look at the root causes of the downturn, which can point you toward companies positioned to benefit from them. With inflation being perhaps one of the most significant concerns among investors now, and with automobile prices specifically rising at a rapid pace, O'Reilly Automotive (ORLY -0.42%) could be a beneficiary.
The prices of new and used cars have skyrocketed over the last year or so, in large part due to a shortage of semiconductors that has hampered new vehicle production. Gone are the days of haggling with the dealership for prices below the manufacturer's suggested retail price (MSRP). Now, buyers are usually paying well above the sticker price. The chart below shows just how extreme the price increases have been.
US Consumer Price Index: New and Used Motor Vehicles data by YCharts
This will likely price many Americans out of the new car market and encourage people to keep their current vehicles longer. Enter O'Reilly, a leading parts supplier for retail customers and professional auto mechanics.
O'Reilly has already begun to benefit from these conditions. In 2021, sales grew by more than 13% while diluted EPS grew a whopping 32% -- the company's second straight year of more than 30% EPS growth. It achieved that in part due to a share buyback program that returned $2.48 billion to shareholders in 2021 or nearly 6% of the company's current market cap.
O'Reilly currently trades at a price-to-earnings ratio near 21, down 8% from its 52-week high. Considering the company's rapid EPS growth and the secular tailwinds in its market, now may be an excellent time to invest in this company.
Vici Properties
Another solid strategy for weathering a market storm is to invest in stocks that pay steady dividends. Taking those quarterly checks or reinvesting them can allow investors to wait out market swings with less concern over short-term stock price movements.
As one of the world's largest gambling and entertainment real estate investment trusts, Vici Properties (VICI -1.96%) has had its share of trouble since COVID-19 struck. Casinos nationwide were compelled to close for extended periods or to operate at drastically reduced capacity. Yet Vici has managed to increase its dividend not once but twice since spring of 2020. The payout at its current share price yields just over 5%.
Vici is also set to close on its acquisition of MGM Growth Properties (MGP), which will be immediately accretive to its adjusted funds from operations (AFFO). That deal will add seven Las Vegas resorts to the company's portfolio, including the MGM Grand, Luxor, and Mandalay Bay. The timing couldn't be better as Nevada has just posted its 11th straight month of over $1 billion in house winnings. Vici also reports that 97% of its rental agreements have automatic escalators tied to the consumer price index (CPI). In other words, when inflation rises, so does the rent it collects. For all of these reasons, Vici is a solid pickup in a market sell-off.
