Market volatility is picking up. The Nasdaq Composite fell nearly 8% between April 5 and April 11. Rising inflation, geopolitical tensions, lingering consequences from COVID-19, and cramped supply chains have given investors pause after that tech-heavy index rose 21% in 2021 while the S&P 500 rose nearly 90% from the end of 2018 to the end of 2021.
If you're looking for stocks that can weather sell-offs and even bear markets, it can pay to look at companies with a powerful brand and a solid history. Three brand-name stocks that are worth a look today are Walt Disney (DIS -0.45%), Nike (NKE 0.95%), and Adobe (ADBE -0.27%); each is down significantly from its all-time high. Here's what makes each a great buy now.
Image source: Getty Images.
1. Disney: A memory-making media marvel
The COVID-19 pandemic took a sledgehammer to Disney's bottom line, resulting in a net loss in the fiscal year that ended in October 2020. Disney is a business built on in-person experiences and memories, whether in the movie theater or at its parks. The pandemic ground those activities to a halt. And only last quarter did Disney begin to see a meaningful rebound in its business.
However, Disney has extraordinary inflation-resistance; people are paying more at its parks. Add on Disney+, which is growing faster than anyone could have hoped for, and Disney looks to be a much more powerful media company today than it was before the pandemic started.
Like most businesses that depend on consumers' discretionary income, Disney is vulnerable to economic downturns. But the company has proven time and time again that it is a long-term winner. Disney stock is lower now than it was before Disney+ was launched in November 2019. The business will likely take time to get back to record numbers and though the stock is down 35% from its all-time high at the time of this writing, the long-term thesis is stronger than ever.
2. Nike is at the top of its game
Nike is probably the most-recognizable athletic apparel company in the world. Its dominance has only grown in recent years due to massive sponsorships with hundreds of athletes including Kevin Durant, LeBron James, Mike Trout, Odell Beckham Jr., and many others. Aside from the professionals it directly sponsors, Nike has varying degrees of apparel partnerships with up-and-coming athletes such as Scottie Scheffler, the 25-year-old who just won the Masters Tournament.
Nike's ambition to be the world's leading athletic apparel company has resulted in surging operating expenses. But, overall, Nike's strategy seems to be working, as Nike's net income and revenue reached all-time highs in 2021, with net income up 159% in the last 10 years, doubling the increase in operating expenses.
One of the best metrics to use when looking at a company like Nike is operating margin, which is operating income divided by revenue. Nike's operating margin was 15.6% in 2021, which was a 25-year high. This performance signals that Nike's business is the most efficient it has been in decades despite being much larger and spending more money -- which is very hard to do.
NKE Operating Margin (Annual) data by YCharts.
Down 30% from its all-time high as of this writing, Nike stock looks like one to consider buying now.
3. Adobe: A free cash flow machine
Adobe stock is down around 40% from its all-time high as of this writing as slowing growth and inflation pressures combine for a one-two gut punch to Adobe's long-term thesis. Adobe may have slowing revenue growth, but it also has incredibly impressive free cash flow and net income growth.
Part of the reason Adobe isn't growing sales at the 30%+ clip investors were used to a few years back is because Adobe is now a behemoth in the tech sector and a staple for large and small businesses, students, and individual creators. Adobe's Creative Cloud software suite is the industry standard for photo, video, graphic design, illustration, website, video game, and social media editing.
To combat inflation and increase growth, Adobe is implementing price increases of roughly 5% that will go into effect on April 27. The price increases will test customer loyalty to Adobe during a challenging economic climate. If the price increases are a net positive, it will further prove just how instrumental Adobe's software is in modern business.
In the meantime, Adobe's price-to-earnings ratio and price-to-free-cash-flow ratio are hovering around their lowest levels in five years -- signaling that Adobe stock is relatively inexpensive compared to its historical valuation.
A market-beating stock starts with a great underlying business
Disney, Nike, and Adobe stocks are all down significantly from their all-time highs. Each company is a leader in its respective industry, and also an incredibly strong brand. Disney and Nike are two of the most powerful brands and instantly recognized logos in the world. Adobe is the leading provider of graphic design software and the growing importance of video and photo editing for social media and marketing campaigns amplifies the role Adobe should continue to play in e-commerce.
No one knows what the stock market will do over the short term. But by sticking with long-term winning companies, an investor stands a better chance at coming out the other side of a sell-off or even a bear market in good shape. These businesses may take a hit to their short-term performance but still have excellent long-term theses.
