This has been one of the most challenging years on record for Wall Street and the investing community. Since all three major U.S. indexes hit their all-time closing highs, the Dow Jones Industrial Average, S&P 500, and growth-dependent Nasdaq Composite have respectively tumbled by as much as 19%, 24%, and 34% through June 20, 2022. With declines that are now well in excess of 20%, the S&P 500 and Nasdaq Composite are mired in a bear market.
Although bear markets can be scary for the uncertainty they bring to the table, they also represent a unique opportunity to buy into high-quality stocks at a discount. Even though we don't know precisely when a bear market will begin or end or how steep the decline will be, history is quite clear that all notable declines, including in the Nasdaq, have eventually been cleared away by bull markets.
Image source: Getty Images.
Best of all, investors don't need a mammoth amount of cash to take advantage of these declines and build wealth on Wall Street. If you have $3,000 at the ready that won't be needed to cover bills or emergencies, here's where to invest it in a Nasdaq bear market.
Alphabet
One of the smartest stocks investors can buy with $3,000 as the growth-oriented Nasdaq plunges is FAANG stock Alphabet (GOOGL +1.71%)(GOOG +2.00%). Alphabet is the parent company of internet search engine Google and streaming-platform YouTube.
For the past couple of months, Alphabet's share price has taken it on the chin like most tech- and consumer-focused businesses. But what Wall Street and investors are overlooking is a mountain of competitive advantages that aren't going away anytime soon.
NASDAQ: GOOGL
Key Data Points
For example, Google is practically a global monopoly when it comes to internet search. Data from GlobalStats shows that Google has accounted for 91% to 93% of worldwide internet search over the past two years. Businesses are well aware that Google search offers the best opportunity to get their messages in front of as many users or targeted eyeballs as possible. It's why Alphabet has such incredible ad-pricing power, and illustrates how Google has pretty consistently grown ad sales by a double-digit percentage for more than two decades.
Alphabet's dominance also extends into the social media space and cloud services. Streaming-platform YouTube is the second-most-visited social site on the planet, which has boosted ad revenue and subscriptions.
Meanwhile, Google Cloud is the global No. 3 in terms of cloud infrastructure spending. The latter is particularly intriguing, considering that cloud service operating margins are usually much higher than advertising operating margins. In the years to come, Google Cloud has the potential to double Alphabet's annual operating cash flow many times over.
NASDAQ: ISRG
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Intuitive Surgical
Innovative healthcare-company Intuitive Surgical (ISRG +2.46%) is an ideal stock in which to invest $3,000 during a Nasdaq bear market. Even though the company's earnings multiple has come under fire in the very short term, Intuitive Surgical's sustainable competitive edge should allow it to make long-term investors richer.
For more than two decades, Intuitive Surgical has been installing its surgically assisted da Vinci robotic systems worldwide. When the curtain closed on the first quarter of 2022, 6,920 of these systems were installed globally. Not only is this considerably more than any of the company's competitors, but the high price of these systems, coupled with the many hours of training given to the surgeons operating them, make it very unlikely that da Vinci surgical-system buyers will leave for a competing system.
The company's success is also a reflection of its razor-and-blades operating model. Throughout the 2000s, most of the company's revenue came from selling its pricey, but mediocre margin, da Vinci systems. As the installed base of these has grown, so have the sales of instruments used with each procedure and the servicing of these systems. These segments offer substantially juicier margins and have set the company's profits up to grow markedly faster than sales for the foreseeable future.
As a final note, da Vinci is arguably still in its early innings for capturing soft-tissue surgical-market share. Though it's the premier choice for urology and gynecology procedures, it has a long runway to pick up share in colorectal, thoracic, and general soft-tissue surgeries.
Image source: Getty Images.
Bank of America
Money-center giant Bank of America (BAC +0.78%) is another perfect stock in which to invest $3,000 amid heightened bear market volatility. While bank stocks aren't typically an industry that investors would focus on during bear markets, one unique event makes BofA a standout stock to buy.
Generally, bear markets are characterized by weak investor sentiment, the rising prospect of a U.S. recession, and Federal Reserve monetary easing. Altogether, these factors often result in bank profits falling as loan delinquencies rise and net interest income drops.
NYSE: BAC
Key Data Points
But that's not the case this time around. For the first time ever, the nation's central bank is raising interest rates -- aggressively, might I add -- into a falling stock market. The Fed left its foot on the accelerator for too long and now has no choice but to raise lending rates rapidly to bring historically high inflation under control. It just so happens that Bank of America is the most interest-rate sensitive of the big banks.
According to the company's first-quarter investor presentation, a 100-basis-point parallel shift in the interest-rate yield curve would produce an estimated $5.4 billion in added net interest income over 12 months. In just the past three Fed meetings, the fed funds target rate has been increased by an aggregate of 150 basis points.
Bank of America is set to enjoy a windfall of added interest income but is currently trading near its book value. The time for opportunistic investors to strike is now.
