There are few better times to be buying stock in great companies than after the market has undergone a significant downturn. That's the case right now -- as of this writing, the S&P 500 is down close to 15% from its 52-week high.
Not every great stock has fallen to an attractive level, though. Here's a look at three appealing companies that could be great additions to your portfolio -- especially if they fall in value.
1. Sherwin-Williams
Sherwin-Williams (SHW 0.54%) shares were recently down a hefty 31% from their 52-week high, which might, you would think, make them a screaming bargain right now. You'd be wrong to think that way, though, because a stock's price by itself isn't too meaningful. You need to compare it to other measures, such as earnings or sales.
Consider, for example, the paint giant's price-to-earnings (P/E) ratio, which was recently a steep 36, above its five-year average of 33. Its price-to-cash-flow ratio, meanwhile, was recently 37, well above its five-year average of 24. Looking at various metrics, Sherwin-Williams shares seem to be fairly valued at best and overvalued at worst. To maintain a margin of safety, it would be best to wait for a downturn before plunking down your hard-earned dollars.
Do keep it on your watch list, though, because the company has been a stellar performer over many years, averaging annual growth of more than 18% over the past 20 years, and that's without even reinvesting dividends. (The S&P 500 averaged 8.7% over that period.) Its shares are down lately in large part due to inflated prices of raw materials along with supply chain issues that plague many companies these days. But those are likely to be temporary problems, and consumers and businesses are likely to always need paint.
2. McKesson
While many companies sport stocks that are down 20%, 30%, 40% or more, shares of McKesson (MCK 0.62%) were recently down only about 3% from their 52-week high. The diversified healthcare company, founded in 1833 and recently sporting a market value topping $52 billion, is involved in everything from pharmaceutical distribution to medical supplies, pharmacy services, biopharma solutions, healthcare consulting, and technology.
In its first quarter of fiscal 2023, ended June 30, McKesson posted revenue of $67 billion, up 7% year over year, income from continuing operations up 57%. CEO Brian Tyler also boosted the company's guidance for full-year fiscal 2023 earnings. It's not hard to see why the stock hasn't been hammered lately, like many others.
The company has hiked its dividend substantially, too, raising it by 15% in July -- and even Warren Buffett's company is an investor. This is another company worth adding to your watch list, waiting for a pull-back. Or if you're really interested, consider buying into this promising stock gradually.
3. American Tower
American Tower (AMT -0.70%) is a company many people are not aware of, but it has been a solid long-term performer, averaging annual gains of 15% over the past 10 years (and that's without reinvesting dividends). It's also a real estate investment trust (REIT), meaning it's required to pay out at least 90% of its earnings as dividends. (Its dividend recently yielded 2.3%.)
In its own words, American Tower "provides the wireless infrastructure needed to enable a connected world --outdoors, indoors, and in urban and rural locations." It owns, develops, and leases communications towers and data centers, and sports a portfolio of around 222,000 sites globally, with a whopping 179,000 outside the U.S. -- and international expansion is likely to be key to its growth.
The company's market value recently topped $120 billion, with shares that were recently only down about 12.8% from their 52-week high. Its recent P/E ratio was around 44, below its five-year average of 56, but that's still on the steep side. Buying into the company at a lower price will offer a greater margin of safety, but if you really want to buy, you might do so in installments over time.
These are just three of many promising stocks out there. Take a deeper dive into any that interest you to see if they look like good fits for your portfolio.
