Bear markets can be challenging times for investors. No one likes to see their portfolio values decline by more than 20%.
However, there can be a silver lining. Great companies often go on sale during a bear market, providing investors opportunities to create generational wealth over the long term. Three high-quality wealth creators that are currently on sale are Rockwell Automation (ROK 0.30%), Brookfield Renewable (BEPC 0.45%) (BEP 0.39%), and NextEra Energy (NEE 0.50%). Here's why three Fool.com contributors believe they look like great companies to own for those desiring to create generational wealth.
A time to save
Reuben Gregg Brewer (Rockwell Automation): The risk of a recession seems very high today, as the United States has already experienced two consecutive quarters of declining gross domestic product. That's the unofficial measure of a recession. The corporate playbook at times like this is pretty simple: cut costs. Rockwell Automation's products and services help companies do just that. And yet the stock has fallen by a third from its early 2022 peak.
The baby often goes out with the bathwater during bear markets, so this isn't exactly shocking. But it is notable that at the end of the company's fiscal third quarter, Rockwell Automation was touting a record backlog of work to be done. Yes, it lowered the top end of its organic sales forecast, but it is still calling for double-digit growth between 10% and 12%. It's kind of hard to complain about that.
And that makes the dramatic stock decline a bit confusing, except that, at this point, the dividend yield of around 2% is roughly the middle of the range over the past decade. So Rockwell Automation appears to have gone from overvalued to about fairly valued, which is actually not so bad given the long-term trend toward automation in the industrial sector and beyond. Indeed, buying this stock at a fair price is probably worth it if your goal is to pass the shares on to your heirs.
This proven wealth creator is on sale
Matt DiLallo (Brookfield Renewable): Brookfield Renewable has been a phenomenal wealth creator over the years. The renewable energy giant has delivered 17% annualized total returns since its inception in 1999, growing a $10,000 investment into more than $370,000. That's life-changing wealth creation.
The current bear market has given investors the opportunity to buy this wealth creator at a fantastic price. Shares were recently about 30% below their peak. Because of that decline in its stock price, Brookfield now offers a 4.1% dividend yield.
In addition to that attractive income stream, Brookfield expects to continue growing rapidly. The company sees a trio of organic growth drivers (inflation-linked rate increases, higher electricity prices as existing contracts roll over to higher market rates, and development projects) powering 6% to 11% annual growth through at least 2027. Meanwhile, it sees M&A activities boosting its bottom line by up to an additional 9% each year. That's the potential for as much as 20% annual growth, a possible acceleration from the roughly 10% yearly growth rate it has delivered over the past decade. That should easily support Brookfield's plan to grow its dividend at a 5% to 9% annual rate.
Add Brookfield's dividend yield to its growth rate, and the company could deliver midteen or higher total annual returns in the coming years. Because of that, the 30% slide in its stock price looks like an excellent opportunity to buy shares of this potentially generational wealth creator.
Don't miss the double-digit drop in this stock
Neha Chamaria (NextEra Energy): While it can be painful to watch the value of your portfolio fall in a bear market, these are also the times to put your money to its best use; and there's nothing better than buying beaten-down rock-solid stocks to build generational wealth. NextEra Energy stock, for example, has made patient investors massive amounts of money over the years, making it a stock to buy on a dip. NextEra Energy shares have slumped almost 18% in just one month, as of this writing, and yield 2.3%.
If you look at the 20-year stock performance graph below, it is evident that dividends have played a big role in boosting the wealth of long-term shareholders in NextEra Energy. Rightfully so, as NextEra Energy prioritizes dividends and even offers shareholders great visibility about the kind of dividend growth they can expect in the medium term. For now, the clean energy giant expects to grow its dividends at a compound annual rate of almost 10% through "at least" 2024.
The biggest argument in favor of owning NextEra Energy stock for the long term is that its dividend increases should be well supported by earnings growth driven by the company's expansion in the high-potential clean energy industry. NextEra Energy is already the world's largest producer of wind and solar energy through its clean energy subsidiary, Energy Resources, and has a contracted backlog of nearly 19.6 gigawatts. That's worth 70% of the company's existing clean energy capacity in operation.
That's huge, and with NextEra Energy also diving into newer technologies like green hydrogen, its growth opportunities should only get bigger in the coming years. There's no denying that the world is transitioning from fossil fuels to renewables, so buying shares in a leading company from the industry while they're languishing should pay off.
