Bear markets are harrowing to navigate because fear takes hold and makes investors feel like they could lose everything they've worked so hard to save. And yet market downturns are often the best time to start buying stocks, because, by definition, prices tend to be cheap.
This is why investors should look for great companies to put on a buy list for when the market goes into a tailspin, effectively preparing for action beforehand. This way, you have a plan to help you move past the fear of buying when everyone else is selling.
Nucor (NUE -1.08%), Colgate-Palmolive (CL 0.33%), and Duke Energy (DUK 0.77%) are three names you might want to have on your list.
Image source: Getty Images.
1. Nucor: The biggest and the best
Nucor is not the fastest-growing steel mill, but it is the largest and most diversified in the United States. It didn't achieve that industry position overnight -- it was built from the ground up over decades.
Right now, the company is executing at the top of its game, producing record-breaking results. But steel is a cyclical business, so it will eventually have to suffer through another rough patch. In other words, the stock will likely sell off and get cheap again.
The reason to jump on board at that point is partly because of Nucor's industry position. But there's more to the story. This steel mill uses electric arc mini-mills, which tend to be more flexible than older steelmaking technologies. It has long focused on pushing into industry niches where it can add value to products, thus allowing it to improve margins. And it has an incredibly strong relationship with its employees, with a profit-sharing pay model that rewards them during good times and gives Nucor a break on salary expenses in bad times. Meanwhile, despite the cyclical nature of the industry in which it competes, the company has increased its dividend annually for nearly five decades.
That's a list of positives that would be impossible to find at any other U.S. steel mill. When Nucor's business faces hard times again, which it eventually will, you should consider adding it to your portfolio.
2. Colgate-Palmolive: A big-brand manager
Colgate-Palmolive is a consumer staples giant with a portfolio of brands that are hard to beat. You can see that just in its name, which includes two of the best-known toothpaste and dishwashing soap brands around. But that's not all it owns, with a portfolio that spans across pet food (Hills), deodorant (Speed Stick), soap (Irish Spring), and skin care (PCA Skin), among many others. It is probably best thought of as a brand manager.
That's notable, because the $60 billion market cap company has the size to remain an industry leader for years to come. Basically, Colgate-Palmolive has the money and portfolio to maintain strong relationships with customers and retailers. And it can continue to support innovation to distinguish its brands from the competition.
This entrenched industry position should allow it to muddle through any market downturn in relative stride. Meanwhile, as an investor, this knowledge should give you the confidence to step in while others are fearful. The fact that Colgate-Palmolive is a Dividend King should help, too. When the market sours on this industry-leading name, you'll want to be prepared to buy it.
3. Duke Energy: Boring is good
Duke Energy is not a very exciting utility. That's basically the goal, since it is simply trying to be a reliable provider of electricity and natural gas to the nearly 10 million customers that rely on it for access to these energy sources. It's the kind of cornerstone investment that conservative types can be comfortable adding to their portfolios. That said, the stock has been rising in the face of market turbulence as investors seek out safe havens.
That will likely change and Duke Energy's stock will flounder, even though it has a reliable, regulated business. That last bit is important, because in exchange for monopolies in the markets it serves, Duke has to get government approval for the prices it charges. To get higher rates, the utility must invest in its business. That spending tends to take place regardless of what's going on in the world around it, leading to slow, methodical growth over time, no matter what's happening on Wall Street.
To that end, Duke has a $63 billion five-year capital spending plan in place today. It believes that this will support earnings growth of between 5% and 7% through 2026. And that should allow it to keep its nearly two-decade-long annual dividend streak going strong. Should investors sell this name off, it could make a good addition for investors who can see the beauty in a slow and steady government-regulated business.
Everything falls eventually
There's an old Wall Street saying that trees don't grow to the sky, which is to say that every stock eventually comes upon hard times. Nucor, Colgate-Palmolive, and Duke are all industry leaders with long and successful pasts behind them. And, more importantly, there's no reason to doubt that they will continue to excel in the future. When they sell off, you should be ready to pounce.
