The best time to figure out what you want to do during a market sell-off is before that sell-off begins. This is why you should have a list of companies that you want to buy if only their stocks were cheaper.
A downturn could offer up a better price, but given the fear that's often present in times of Wall Street turmoil, you may only be ready to act if you decide beforehand that you will. Here are three names you might want to put on that bear market wish list today.
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1. Steel Dynamics: Smaller, but growing faster
Steel stocks are extremely expensive today, as they put up record-breaking results. That includes Steel Dynamics (STLD 1.31%), which is a relative newcomer compared to industry giant Nucor and iconic United States Steel.
That said, the company's production is built on electric arc minimills (like Nucor's fleet) that are more flexible than blast furnaces, which are a big piece of U.S. Steel's business. This is an important distinction because Nucor has long been the industry's leading name.
So why not buy Nucor in a sell-off? Well, you could, and you'd likely be happy doing so. But Steel Dynamics was co-founded by an ex-Nucor employee and uses its "stepsister's" playbook to a large degree. However, with a market cap of around $14 billion, it is less than half the size of Nucor. That means it takes less investment to move the top and bottom lines significantly. And this in turn gives Steel Dynamics a stronger growth outlook.
One place where that's shown up is on the dividend front, where Steel Dynamics' dividend has grown at an annualized clip of roughly 10% over the past decade, compared to the low-single-digit annualized dividend growth at Nucor over the same time span.
If you are on the lookout for a steel name and are focused on dividend growth, Steel Dynamics is probably the best name for your bear market wish list.
2. Procter & Gamble: Smaller and better
Procter & Gamble's (PG -1.06%) current elevated share price is directly related to its recent success. In fact, despite inflationary headwinds, it has been able to increase its organic sales while it has been increasing prices.
Don't underestimate how impressive a feat that is, as some of the company's peers have been slammed by rising costs that they couldn't pass on to customers. The real story here dates back a few years, to when Procter & Gamble was supporting a bloated portfolio of smaller brands that just didn't add much to the overall business.
This is why the consumer staples giant decided to slim down, jettisoning all but a core portfolio of large, well-performing names. Since that point, Procter & Gamble has really been on fire, as it has refocused its support on the brands that matter most.
Just how good? Earnings grew 1% in the fiscal second quarter of 2022 -- which sounds terrible until you realize that was lapping 15% growth in the prior year. And it means that Procter & Gamble effectively kept all of the earnings benefit it saw from the elevated consumption during the 2020 pandemic.
This innovation-driven consumer products maker is executing at the top of its game, and a bear market pullback should be welcomed as an opportunity for investors to jump aboard at a more desirable price point. Notably, income growth-oriented investors should consider that the last dividend increase here was a generous 10%.
3. Cintas: Uniform performance
Cintas (CTAS 0.19%) is the last name on this list. The company focuses on renting uniforms. While that sounds kind of boring, the company has been anything but for investors. Even after a 20% pullback from its recent highs, the stock is still up more than 800% over the past decade.
While you can argue that Cintas is already in a bear market because of that, the 1% dividend yield is still on the lower side of its recent historical range. A yield closer to 1.5% would be much more attractive and could come about in a broader market pullback.
To be fair, Cintas is economically sensitive, given that its customers tend to need fewer uniforms during recessionary periods. But the long-term trend here is for growth, often via acquisition. And a downturn would make it that much easier to find good bolt-on deals. Indeed, with leverage back down after 2017's purchase of G&K Services, Cintas looks like it's ready for another sizable purchase.
So a broader market downturn, perhaps initiated by a recession, might actually be a good thing for Cintas' business. And if you prepare ahead of time, you can take the opportunity to buy at lower prices, confident that management will continue to find new avenues for long-term growth.
Some added confidence here should come from the company's nearly four decades'-long streak of annual dividend increases -- you don't achieve that by accident.
Hard times can be good times (to buy)
Living through a bear market can be stressful. It's even more difficult to lean into the often visceral fear and buy stocks. But broad market sell-offs, when investors are throwing the baby out with the bathwater, are often the best times to invest. The key is setting up your buy list in advance so you are prepared to act. Steel Dynamics, Procter & Gamble, and Cintas are all names that you might want to include on that list.
