It may sound surprising, but I am an investor who looks forward to market corrections. Why? Because the resulting lower valuations and cheaper stock prices make great, well-run companies even more enticing. Such market pullbacks represent the perfect opportunity to accumulate shares of strong companies that you can keep over the long term.
Of course, it's not as simple as just indiscriminately buying a smattering of companies when share prices decline across the board. It's important to be selective and target businesses that display certain characteristics. These include a strong and recognizable franchise, market leadership, an ability to keep growing sustainably, and a capable management team. Such attributes can help you select great stocks that can compound your wealth and set you up for a comfortable retirement.
Here are three stocks that qualify to be in your portfolio should the market correction continue.
Image source: Getty images.
1. Ulta Beauty
When it comes to beauty, Ulta Beauty (ULTA -0.30%) knows exactly what women want. The largest beauty retailer in the U.S. carries a wide assortment of cosmetics, fragrances, and skincare products -- and basically represents a one-stop shop for all things beauty.
The company was temporarily impacted by the pandemic when it experienced a dip in revenue and opened just 10 new stores in its fiscal 2021 year (ended Jan. 31, 2021). However, it has since bounced back strongly with net sales of $8.6 billion for the latest fiscal year (ended Jan. 29), exceeding the pre-pandemic level of $7.4 billion, and net income of $985.8 million, higher than $706 million two years ago.
Comparable-store sales rebounded sharply, up nearly 38% year over year as consumers started opening their wallets again once the crisis eased. And there's more good news -- the U.S. beauty and personal care market experienced a slight 3% year-over-year dip in 2020, but Ulta now forecasts annual growth getting back on track at between 2% to 4% per year from 2022 to 2024. The increase in the size of the market provides ample opportunity for the company to continue growing both its top and bottom lines.
The company's recent investor day also highlights the importance of its omnichannel ecosystem, which smoothly melds its physical stores with its digital channels, enabling the delivery of personalized experiences. For the 12 months ended July 31, 2021, spending by omnichannel customers was triple that of online-only members, and the frequency of purchases by omnichannel customers was four times greater than purely online purchasers.
Ulta ended fiscal 2022 with 1,308 stores and believes it could open up to 1,500 to 1,700 more U.S. stores in the future. These initiatives should prepare the company for continued growth as it extends its leadership and connects with more customers.
2. Stryker
Stryker (SYK 0.18%) is leading the way in medical technology, as the company offers an innovative range of products in categories such as neurotechnology, orthopedics, medical, and surgery. The company continued to report growth even though fewer elective procedures were carried out due to the pandemic.
For its fiscal 2021 ended Dec. 31, net sales rose 19.2% year over year to $17.1 billion, while operating income increased by 16.2% to 2.6 billion. Net income climbed by nearly 25% to $2 billion, and Stryker continued to generate a healthy free cash flow of $2.7 billion, similar to the level generated a year ago.
The company is also a consistent payer of dividends, with its latest quarterly amount of $0.695 per share representing a 10.3% year-over-year increase. Stryker has raised its annual dividend for 11 consecutive years since 2010, making it a good stock to consider for income-seeking investors. It's also a great hedge against inflation, which has been hitting a four-decade high in recent months, as it enjoys long-term tailwinds of increased healthcare spending.
Stryker is not just growing organically through new product introductions but also through acquisitions. In early January, it purchased Vocera Communications for around $3.1 billion in a deal that will complement Stryker's digital healthcare offerings. Growing healthcare spending and an innovative pipeline of products should ensure that Stryker can continue to grow in the future.
3. Tractor Supply
The pandemic has also resulted in more people turning their attention to their homes and farms, a phenomenon that has benefited Tractor Supply (TSCO 2.53%), the largest rural lifestyle retailer in the U.S. The company has seen demand for its products, such as farming tools, lawnmowers, and pet supplies, surge in the last two years and expects this to continue. In its 2021 fiscal year, net sales rose almost 20% to $12.7 billion, while net income improved by 33.1%. Meanwhile, Tractor Supply paid out a total dividend of $2.08 for the year, up 39% from the $1.50 paid out a year earlier.
The company seems confident it will continue this growth streak. It estimates its total addressable market stands at around $180 billion, providing ample room for further increases in both the top and bottom lines. With slightly over 2,000 stores in the U.S. at the moment, Tractor Supply has set a new long-term target of 2,700 stores that it believes it can realistically achieve over time.
Its loyalty program, Neighbor's Club, is also doing well, with 23.6 million members at the end of 2021 and has helped to both retain customers and engage them better. The tailwinds of increased pet ownership and greater self-reliance should bode well for the company as it strives to scale up its presence around the U.S.
