3 Surefire Stocks to Buy in the Next Bear Market

The year 2022 was quite challenging for the U.S. stock market. However, many analysts and investors started expecting a bull market in the coming months. The broad-based S&P 500 index gained around 6.2% in January 2023 -- the best January performance in the last four years.

But, with hotter-than-expected inflation data and stronger-than-anticipated unemployment data in January 2023, the chances of the Federal Reserve pausing or slowing interest rate hikes now seem slim. While analysts and investors remain unsure whether the economy is still in a bear market or a bull market has begun, it is always a wise choice to prepare for the worst.

Here's how stocks like CrowdStrike (CRWD 0.28%), Zscaler (ZS -1.04%), and Visa (V 0.04%) can be good additions to your portfolio in the next bear market.

CrowdStrike

The first surefire stock to buy is leading endpoint security player CrowdStrike. The company's multimodular Falcon security platform (23 modules) protects customers by identifying and neutralizing cyber threats. The platform also collects data about threats and sends it to an artificial intelligence algorithm called the Threat Graph, which then uses the information to get better at identifying threats.

Thanks to the network effect, the Falcon system is becoming even more intelligent and valuable to customers after every intercepted threat.

Subsequently, CrowdStrike continued attracting new customers even in the uncertain economic environment. The company served 21,146 subscription customers as of November 2022, up 44% on a year-over-year basis. Since 60% of its subscription customers use five or more of the company's modules, it is difficult for the clients to switch to the competition.

Hence, the company enjoyed a gross retention rate of over 95% for the past 18 quarters. The company also implemented a successful land-and-expand strategy as is evident from a dollar-based retention rate of more than 120% for the past 16 quarters.

Besides endpoint security, CrowdStrike expects to enter adjacent markets such as identity protection, data protection, and log management in future years. The company estimates its target addressable market to be worth $158 billion in 2026. With an annual run rate of just over $2 billion, there is still plenty of scope to grow for this cybersecurity giant in the coming years.

Zscaler

The second surefire stock to buy is leading cloud security company Zscaler. Unlike traditional security players that protect networks with firewalls, Zscaler deploys "zero trust" security, which verifies all data and access requests each and every time, even from previously approved network participants (even the company's CEO).

The rapid adoption of digitization across the world has changed the way people live, work, and entertain themselves. The increasing migration of enterprise data from on-premise servers to multicloud infrastructure also helped reduce costs and improve scalability.

However, these benefits come at a price. With huge amounts of data being generated and shared on the internet as well as the public cloud infrastructure being connected to the internet, the risk and cost of cyber threats also increased dramatically.

Zscaler is one of the major beneficiaries of these conditions and estimates its current serviceable addressable market (SAM) to be worth $72 billion. Enterprises with more than 2,000 employees account for a $49 billion SAM and workloads in public clouds account for a $23 billion SAM.

The company implemented a successful land-and-expand strategy as is apparent from its net retention rate of over 125% for the past eight consecutive quarters (ending Oct. 31, 2022). Revenue has been growing year over year by more than 50% for the past nine consecutive quarters. The company is also cash-flow-positive, although it is not yet profitable.

Zscaler is not without risks and faces challenges, such as lengthening sales cycles and an expensive valuation. However, considering the strong business model and impressive financials, it can be an attractive long-term buying opportunity.

Visa

The global payment processing market is estimated to grow from $39.57 billion in 2020 to $146.45 billion in 2030 -- driven by the increasing shift toward a cashless society. Being a leading payment processor with more than 4.1 billion credit and debit cards in circulation and over 80 million merchant locations on its payment network, Visa is poised to capitalize on this trend.

Visa managed to beat both revenue and earnings estimates in the first quarter of fiscal 2023 (ending Dec. 31, 2022). The company proved to be quite resilient even in a high inflationary environment. Since Visa earns a percentage as fees for every transaction on its network, the increase in transaction value due to inflation is translating into higher revenue for the company.

Visa also benefits from the network effect, as its huge payment network attracts more and more merchants, which in turn attracts even more customers, thereby resulting in a virtuous cycle. Further, Visa has already done the hard work of creating a broad and scalable payment network. Since the network does not require significant investment now, Visa has managed to become a highly profitable company with a net income margin over 50%.