The venerable Dow Jones Industrial Average tumbled into a bear market this year, falling more than 20% from its recent peak. While bear markets are challenging for investors, they tend to be short lived -- averaging less than 10 months -- and eventually give way to a new bull market. Those upcycles usually last much longer (nearly three years on average) and feature significant gains (stocks have historically rallied an average of 114% in bull markets).
All this means bear markets can be great opportunities for investors with a long-term mindset. With that in mind, three top-notch Dow stocks to consider buying amid the current bear market are Chevron (CVX 0.37%), 3M (MMM 0.46%), and Honeywell (HON 0.22%). They should deliver solid returns during the next bull run, making them no-brainer stocks to consider buying.
This outlier has the fuel to continue growing
Chevron has bucked the current bear market. Shares of the oil giant have risen more than 37% this year, making it the best-performing Dow stock by a wide margin. Higher oil prices have helped fuel Chevron's rally. While crude has cooled off from its peak, oil is still up about 15% on the year.
Chevron is cashing in on higher crude prices this year. The company produced $21.8 billion in cash flow from operations during the first half of 2022, up from $11.2 billion in the year-ago period. That gave Chevron the funds to:
- Grow its traditional and new energy businesses, including acquiring leading renewable fuels producer Renewable Energy Group for over $3 billion.
- Increase its dividend by another 6%, marking the Dividend Aristocrat's 35th year of growth.
- Continue reducing debt, driving its leverage ratio well below its target range.
- Boost the high end of its share repurchase range to $15 billion.
Chevron's investments should enable it to continue growing in the future. Because of that, it remains in an excellent position to create additional shareholder value during the next bull market.
Taking steps to turn things around
Industrial conglomerate 3M is having a tough time in the current environment. Shares are down more than 35% as the company faces some pandemic-related and legal headwinds.
However, 3M has a plan to turn things around. It's spinning off its healthcare operations to unlock the value of that business. It also initiated Chapter 11 proceedings for one of its subsidiaries to help facilitate an efficient, equitable resolution of some litigation. These moves position 3M to drive long-term value creation for shareholders.
The company's remaining business will focus on applying science to improve lives. It will benefit from several megatrends, including auto/mobility, e-commerce, digitization, and sustainability, which should drive long-term growth.
Meanwhile, the company has a strong balance sheet and free cash flow, allowing it to invest in its growth markets while returning cash to shareholders through repurchases and a growing dividend. 3M has paid dividends for more than a century, including increasing its payout for the last 64 straight years.
Entering the next stage
Honeywell spent the last several years building a portfolio to accelerate growth. That strategy will start paying off this year. It's targeting to deliver organic sales growth of 4% to 7% annually (up from 3% to 5%), with strategic M&A providing an additional boost. The company also expects to deliver expanding margins, driving even faster earnings growth and strong free cash flow.
Honeywell's growing free cash flow will give it more financial flexibility to invest in growth while returning cash to shareholders. The company deployed $2.3 billion of capital during the second quarter, including repurchasing $1.4 billion of its shares, which have tumbled 15% during this year's bear market. Honeywell also recently increased its dividend, marking its 13th raise over the last dozen consecutive years.
The industrial company is in an excellent position to grow shareholder value in the next bull market. Its combination of solid organic growth that it can accelerate with M&A and complement with increasing cash returns to shareholders should enable Honeywell to produce attractive total returns in the coming years.
High-quality Dow stocks
Chevron, 3M, and Honeywell are mature businesses that generate lots of free cash flow. That gives them the funds to invest in expanding their businesses and return capital to shareholders through dividends and repurchases. This combination should enable these companies to produce solid total returns over the long term, making them no-brainer Dow stocks to consider buying during the current bear market.
