The stock market tumbled into bear market territory this year, falling more than 20% from its recent peak. That makes investing more challenging since it's unclear whether the stock market has bottomed. Because of that, many investors are likely sitting on the sidelines, waiting for the all-clear to buy stocks again.
However, waiting could cause them to miss what appear to be attractive prices for certain stocks. Some of our contributors believe investors should consider taking the plunge and buying shares of Stanley Black & Decker (SWK -0.21%), Brookfield Infrastructure (BIPC -2.38%) (BIP -1.57%), and American States Water (AWR 0.91%), since they look like great long-term investments at these lower prices.
Time should fix these problems
Reuben Gregg Brewer (Stanley Black & Decker): Industrials like Stanley Black & Decker operate in a highly cyclical space. In this case, the company makes the tools, equipment, and fasteners that get used during economic upturns to build everything from houses to cars. During downturns demand for these products tends to wane, which is bad news for top and bottom lines. Right now central banks are pushing interest rates higher, leading to worries about a recession. On top of that, the company is dealing with the effect of inflation and supply chain constraints.
Investors have reacted by selling stock, pushing it down by around 50% from its 2021 highs. That has pushed the stock's yield up to around 3%, well above the five-year average of around 2% and the highest the yield has been in a decade, aside from a brief spike during the pandemic-driven bear market in 2020. It looks like Stanley Black & Decker is on sale today.
That said, things could get more difficult before they get better. In the first quarter of 2022, price hikes led to a 6% drop in volume, a fact obscured by an acquisition. Gross margin fell 6.1 percentage points year over year. These numbers will continue to be weak if there's a recession. But recessions eventually end, supply chains straighten out, price hikes get accepted by consumers, and margins eventually improve. It will just take time. However, Wall Street doesn't think long-term. You might want to accept the bad news here and buy this Dividend King while you can still get a decent price.
A quality company at a discounted price
Matt DiLallo (Brookfield Infrastructure): Shares of Brookfield Infrastructure have tumbled almost 20% over the last three months. That has the global infrastructure operator trading at a much more attractive price while pushing its dividend yield up to 3.4%.
The main issue weighing on Brookfield Infrastructure is the concern that the global economy will start slowing down as central banks increase interest rates to combat inflation. That would have some effect on Brookfield's volumes. Roughly 35% of its business benefits from volume growth tied to an expanding global economy. If the economy were to enter a downturn, that would be a headwind for some of Brookfield's operations.
However, the company is also benefiting from several tailwinds that should mute the effect of a slowing global economy. For example, 70% of Brookfield's cash flow will benefit from contractual or regulated adjustments for inflation. With inflation running hot, Brookfield will get a noticeable inflation-driven boost. Meanwhile, it will also benefit from higher commodity prices in its midstream segment.
Another notable growth driver for the company is its investments to expand its operations. It has projects underway across all four of its business segments, which should drive growth over the next couple of years as those expansions come online. In addition, the company continues to make accretive acquisitions. Brookfield has lined up four deals this year, most recently agreeing to invest in a leading European tower operating company. These transactions will also boost its earnings.
While Brookfield's share price could fall further if economic conditions worsen, the company is in an excellent position to continue growing during a downturn. Because of that, the recent sell-off looks like a great opportunity to buy shares of this high-quality infrastructure company for the long haul.
Lock in dividends even in a bear market
Neha Chamaria (American States Water): With sky-high inflation compelling the Federal Reserve to increase interest rates at an aggressive pace, many believe the U.S. economy is on the tip of a recession, or at least a slowdown if not a full-blown recession. The threat is real, and when you're looking to invest in stocks under such circumstances, you might want to bet on stocks that could help you sleep well at night come what may. One such fantastic stock that's also on sale right now is American States Water.
American States Water stock has lost nearly 21% value so far this year, largely because of concerns about how rising interest rates could increase the company's borrowing costs while making its dividends less appealing compared with bonds. All of those fears, however, could take a back seat if the economy slows down.
The thing is, American States Water provides water and water management services, the demand for which should remain steady regardless of how the economy fares. While the company primarily provides water services to individual consumers, it also distributes electricity and provides complete water and wastewater management services at military bases. Overall, it serves more than one million customers across nine states, and gets almost 90% of its revenue from residential and commercial customers. And since it is a regulated utility, its earnings and cash flows are stable even in the toughest of years.
That last bit, perhaps, is also the most important reason why you'd want to own American States Water. Stable cash flows can support stable dividends, which means with a stock like this, you can expect to earn decent passive income even in a stock market crash. To put that into context, consider that American States Water has increased dividends every year in the past 67 consecutive years, with dividends growing at a compound annual growth rate (CAGR) of almost 10% in the past decade.
Yes, its dividend growth could decelerate during an economic downturn, but the company is confident of growing dividends at a CAGR of at least 7% in the long term. Adding a dividend growth stock to your portfolio is certainly a smart move during uncertain times, and American States Water, with its recent price drop, makes for a solid bet at current prices.