The bear market that began last year may not be over, and that has some investors concerned about adding money to stocks right now. Despite the early bounce in market indexes in 2023, many stocks remain down 20%, 30%, or more off their highs, and some fear the October 2022 market lows might yet again be tested.
Rising interest rates have thus made bonds and Treasury bills much more attractive. A six-month Treasury bill recently provided an annual yield above 5%. But if you're not just looking for safety of capital and that level of income, there are still stocks available that are worth buying today. GPS device maker Garmin (GRMN 1.07%) is one that provides a reliable dividend and has room to move higher from recent levels.
Risk levels vary
While no stock has the safety of bonds or treasuries, some carry more risks than others. But with that risk comes the potential for higher returns. For those who are simply nervous about stocks, but are investing for the long term and can handle that added risk, Garmin is an intriguing stock to buy right now.
Management has increased Garmin's dividend payout by more than 40% over the last five years. Not only does its impressive cash flow cover that payment, Garmin also has $2.7 billion in cash and marketable securities on its balance sheet and is debt-free. That should give investors comfort even in troubling economic times. With Garmin shares down about 15% over the last year, that dividend recently provided an annual yield of 3%. That gives shareholders a reasonable level of income even compared to bonds and treasuries.
Risk can mean reward
Now is a good time to buy Garmin stock for two reasons. Its valuation is historically low, and the underlying business is strong. The stock's price-to-earnings (P/E) ratio is below 20 after the shares declined last year. That came amid the general bear market, as well as a speed bump in Garmin's growth trajectory. Revenue and net income had both been increasing steadily, but sales dropped slightly in 2022 due to lower consumer spending. Supply chain issues also prevented the company from meeting some demand last year. That resulted in a slight decline in revenue compared to the prior year.
GRMN Revenue (TTM) data by YCharts
But management sees revenue and net income both heading higher in 2023. The company continued to invest in the business, which will help reaccelerate growth. Research and development spending has allowed Garmin to stay on top of consumer trends and offer new products in recent years. While automotive navigation devices were its major revenue contributor as recently as 2015, Garmin's outdoor, aviation, and marine products have driven revenue growth since then.
Data source: Garmin. Chart by author.
Better than bonds for some
Bond buyers often use them strictly for safety and income. No stock can directly replace that. But if you've been using the higher yields as a reason to park money outside of the stock market, Garmin could be a better alternative right now.
While it may not seem like its P/E of 19.6 is a great valuation, that's below both its five- and 10-year averages. Investors give it credit for a cash position representing almost 15% of its market capitalization along with no debt. The 3% dividend yield also provides a reasonable level of income compared to bonds or money market accounts right now.
People shouldn't be scared of investing in stocks during a bear market. In fact, it can be a strategy that provides a significant boost to long-term returns. Garmin stock is providing an opportunity to be that type of investment right now.
