Down 20.6% through June, the S&P 500 is off to its worst start in five decades and is officially in a bear market. It can be tough to endure bear markets, especially when your portfolio loses value month after month.
However, bear markets allow you to buy high-quality companies at discounted prices when others are fearful. There's no telling when this bear market will officially end, but when it does, you'll be happy you own these three high-quality stocks. Let's find out a bit more about them.
1. Visa
Visa (V 0.05%) helps customers move money via debit cards, credit cards, and other payment products across 200 countries. The company holds a substantial lead in the payments-network space, processing over $11 trillion in payments in 2020 -- 80% more than its next closest competitor, Mastercard.
The global-payments company operates a relatively asset-light business model and generates strong cash flow and high profit margin, as a result. Over the last 12 months, Visa's profit margin was 51%, while its free cash flow was $15.3 billion. This is cash the company can use to reinvest in the business, make acquisitions, pay dividends, or buy back stocks.
V Free Cash Flow data by YCharts.
Visa has a strong advantage over the competition, thanks to the strength of the network effect of its payment network, and can perform well in various economic conditions. The company earns fees as a percentage of the payment volume that passes through its network, making it resilient in the face of inflation. But the company does even better when consumer confidence is high and economic conditions are stable.
Visa's dominance of the payments market has it well-positioned to keep winning. You'll be happy you own the stock once the bear market is over.
2. PayPal
PayPal Holdings (PYPL -1.14%) also helps customers move money and was an early fintech that pushed payments into the digital age. The company connects 392 million customers with 34 million merchants globally.
After winning big amid the pandemic, PayPal stock has taken a beating and is down 76% over the last year. The company has lowered its guidance multiple times since projecting 18% revenue growth last year. In April, it guided revenue growth to be somewhere between 11% to 13%. The company's growth has slowed down, some of which is due to it ending its partnership with eBay.
The company also shifted its focus from adding many customers to its platform to getting its existing customers to use it more frequently. To encourage customers to use the app more often, PayPal has over 50 products and services for consumers and merchants, including credit and debit cards, digital wallets, buy now pay later options, and the point-of-sale platform Zettle.
The company currently trades at a price-to-earnings ratio (P/E) of 25, the cheapest it's ever been, and a forward P/E of 15. While PayPal stock has taken a beating, the company has created a stellar digital-payments ecosystem. This is another stock you'll be happy you own when the bear market finally ends.
PYPL PE Ratio data by YCharts.
3. U.S. Bancorp
U.S. Bancorp (USB -1.49%) provides banking services across 2,200 branches in the Midwest and Western regions of the U.S. Its strength is its laser focus on traditional banking activities -- growing deposits and making loans. The bank is very selective when lending its money by focusing on the highest-quality loans, giving it an advantage over its peers with an excellent return on equity (ROE).
USB Return on Equity data by YCharts.
U.S. Bancorp's focus on traditional banking activities makes it more sensitive to changes in interest rates than peers. In the first quarter, the bank's net interest income (NII) grew by 3.6%. In its recent March filing, the bank said a 2% increase in interest rates would increase its NII by another 3.3%.
Banks are vulnerable to economic conditions, and the current market has made some companies hesitant to make any moves until conditions improve, which can cause a slowdown in loan growth for banks. When the bear market ends, loan demand should pick up, and U.S. Bancorp is ready to take advantage.
