Bear markets can be a great time to buy stocks that will help juice portfolio returns for years to come. Not every stock declines for the same reason in a down market, and that can bring opportunities for investors that want to pick individual stocks.
There's nothing wrong with taking a more passive approach and buying index funds during a downturn. But stock pickers can do even better by getting shares of great companies whose stocks can realize strong recoveries after a bear market ends. Three great names to own coming out of the current bear market are Tesla (TSLA 12.03%), NextEra Energy (NEE 1.25%), and Apple (AAPL 1.09%).
Looking for reliability
Investors that got burned betting on speculative stocks might change their approach when the next bull run occurs. That doesn't mean people shouldn't still want to own fast-growing names -- but reliable profits and positive cash flow should be more of a focus. Tesla has been one of those fast-growing stocks in a fast-growing sector. Of course, that combination has led to a high valuation. But the business has plenty of runway left to go. It isn't just growing sales, it has real net income.
Data source: Tesla. Chart by author.
The company has increased profits at a compound quarterly growth rate of 65.9% over the past year. But Tesla shares are down approximately 32% in 2022, and are about flat from the start of 2021.
The company has run into some headwinds from supply chain issues, new plant start-up challenges, and COVID-19-related production delays at its Shanghai plant. CEO Elon Musk has also had other distractions from the saga with Twitter as well as the leader of Tesla's autonomous driving segment leaving the company. With the EV sector looking like it should grow for years to come -- the U.S. just recently passed the milestone of having 5% of new cars sales being electric -- Tesla is a stock long-term investors should want to hold when this bear market ends.
Reliable income also helps
Utilities and other more defensive sectors aren't being hit as hard as growth stocks during this downturn. But investors don't need stocks like NextEra Energy to drop to make them good buys right now. NextEra isn't just a utility, either -- it has a growth segment in its renewable energy subsidiary NextEra Energy Resources. Its renewable energy and battery storage assets are in the sweet spot of a sector with strong momentum.
But investors also get reliable income from NextEra Energy. While the company expects its earnings to grow at a steady mid-to-high single-digit rate through 2025, it projects a 10% annual growth rate in its dividends per share for at least another couple of years. And if history is any guide, the company should achieve that.
NEE Dividend data by YCharts
NextEra has also recently been wading into the water utilities market to boost its cash flow and support that growing dividend.
Getting a discount
A third approach to investing in today's down market is to try and get a discount on a great company. Apple stock is offering that right now. The company reported a record for fiscal second quarter (ended March 26) revenue that grew 9% year-over-year. And it has more than $190 billion in cash, which is always a nice backstop during economic downturns. After dropping nearly 20% this year, Apple is also trading near a multi-year low price-to-earnings (P/E) ratio.
Apple has increased annual revenue by 60% over the last five years. That's not easy to do when the market cap is already near $1 trillion. Investors recognized that and Apple is now valued at more than $2.3 trillion. But the revenue growth has accelerated over the last 18 months, making the stock still a good buy today.
Together, Tesla, NextEra Energy, and Apple help add diversity to a portfolio. But they also each hold something an investor should want when the market swings from bear to bull mode. Buying them now is a great way to position yourself for that inevitable swing.
