In the words of Forrest Gump, "Life is like a box of chocolates; you never know what you're going to get." The same holds true on a year-to-year basis for Wall Street.
Though the broader market tends to head higher over the long run, the year-to-year movement of the major stock indexes can be unpredictable, as last year's bear market plunge for the Nasdaq Composite (^IXIC +1.11%) showed. The same growth stocks that led the Nasdaq to new heights in 2021 served as proverbial concrete blocks that dragged it down 33% last year.
Image source: Getty Images.
But when there's trouble in paradise, there's also opportunity for investors -- including retirees. Even though retirees don't have the luxury of taking big investing risks, they can still nab high-quality companies (many of which pay a dividend) at a discount during a bear market.
What follows are three perfect stocks retirees can confidently buy hand over fist during the Nasdaq bear market.
NextEra Energy
The first stock to buy during the Nasdaq bear market that would be ideal for retirees is the nation's largest electric utility by market cap, NextEra Energy (NEE 0.10%). Although NextEra produced a negative total return, including dividends, last year, it's generated a positive total return for its shareholders in 19 of the past 21 years.
The beauty of utilities is that they provide a basic necessity service. If you own a home or rent, you almost assuredly need electricity to run your appliances. No matter how well or poorly the U.S. economy or stock market perform, electricity consumption habits don't change a lot from one year to the next.
This allows a company like NextEra Energy to forecast its operating cash flow with a high degree of confidence. Having this ability to look ahead lets NextEra invest in new projects and pay a dividend without having to worry about adversely impacting its profits.
NYSE: NEE
Key Data Points
But to be perfectly clear, NextEra isn't your run-of-the-mill electric utility stock. No utility in the country is generating more capacity from wind and solar power.
While investing in green-energy projects hasn't been cheap, management wisely leaned on historically low lending rates for more than a decade to facilitate this transition. The end result is substantially lower electricity generation costs and a compound annual earnings growth rate that's well above the industry average. You might even go so far as to say that NextEra Energy is a growth stock within the utility sector.
Beyond its renewable energy push, NextEra does have regulated utility operations. This is the segment that requires authorization from state public utility commissions before rate hikes can be passed along to customers. Though this might seem like a nuisance, it's fantastic news, because it ensures that NextEra isn't exposed to unpredictable wholesale electricity pricing.
NextEra Energy's entire business is geared around predictability, which is what makes its 2.1% yield the cherry on top for this amazing company.
NYSE: EPD
Key Data Points
Enterprise Products Partners
Energy stock Enterprise Products Partners (EPD +1.51%) also stands out as a no-brainer buy for retirees wanting to maximize their income, while also having the potential to grow their initial investment. Enterprise is parsing out an inflation-crushing 7.6% yield and has been increasing its base annual distribution for almost a quarter of a century.
Whereas utilities are a basic necessity service, I can understand where some retirees might be concerned about putting their money to work in an oil and gas stock. Just three years ago, oil and gas drillers were decimated when initial lockdowns tied to the COVID-19 pandemic sent demand for energy commodities tumbling. Rest assured that Enterprise Products Partners doesn't have these same risks.
Enterprise is a midstream oil and gas company. In simple terms, its job is to move and store oil, natural gas, natural gas liquids, and refined product. The vast majority of the contracts Enterprise Products Partners signs with upstream drillers are long-term in nature and fixed-fee. No matter how volatile the spot price is for oil or natural gas, Enterprise will be able to count on a certain level of cash flow each year. As with NextEra, this cash-flow transparency is what allows for capital to be set aside for infrastructure projects, acquisitions, and its distribution.
If you want further confirmation that Enterprise offers a rock-solid payout, take a closer look at its financial statements during the worst of the pandemic. At no point did its distribution coverage ratio (DCR) fall below 1.6. The DCR is a measure of distributable cash flow from operations relative to what was disbursed to shareholders. A figure of 1 or below would imply an unsustainable payout. Enterprise never came close to this level.
What's more, Enterprise Products Partners should be a beneficiary of the globally challenged energy supply chain. Russia invading Ukraine, coupled with underinvestment in the oil and gas industries during the pandemic, should buoy the spot prices for energy commodities. This is a recipe for Enterprise to land lucrative long-term contracts.
Image source: Getty Images.
Johnson & Johnson
The third perfect stock for retirees to buy hand over fist during the Nasdaq bear market is healthcare behemoth Johnson & Johnson (JNJ +0.10%). J&J, as the company is more commonly known, offers a 2.7% yield and has increased its base annual dividend for 60 consecutive years.
The first thing to note about healthcare stocks is their highly defensive nature. As much as we'd like to be able to control when we get sick and what ailment(s) we develop, we can't. Whether it's a bull market or bear market, people get sick and require prescription drugs, medical devices, and healthcare products and services. It's this consistency of demand that helped J&J grow its adjusted operating earnings for 35 consecutive years leading up to the pandemic.
NYSE: JNJ
Key Data Points
Johnson & Johnson's revenue mix is yet another reason retirees can confidently buy this stock. For more than a decade, pharmaceuticals have grown into a larger percentage of J&J's sales. That's generally good news, given that brand-name drugs have high margins and plenty of pricing power.
But the company has its bases covered for those moments when brand-name drugs lose their sales exclusivity. J&J is constantly reinvesting in its internal research, has not been shy about making acquisitions or collaborating to expand its product portfolio, and can also lean on its industry-leading medical-device segment. As the global population ages, J&J's medical technologies division should see growth accelerate.
Johnson & Johnson might also be the most fundamentally sound company retirees can invest in. It's one of only two publicly traded companies to receive an AAA credit rating from Standard & Poor's (S&P), a division of S&P Global. This is the highest credit rating S&P hands out and indicates the utmost confidence that J&J can service and repay its debts.
Johnson & Johnson is never going to jaw-drop investors with its growth rate, but it does consistently deliver for its shareholders. That makes it a smart stock for retirees to buy during a bear market.
