AT&T (T 0.17%) and Apple (AAPL 1.66%) are both considered stable blue-chip tech stocks to hold during economic downturns. AT&T, which abandoned its media ambitions by spinning off DirecTV and WarnerMedia over the past two and a half years, is now a stable and streamlined play on wireless and wireline networks. Apple generates steady growth through its sales of iPhones, iPads, Macs, accessories, and services.

Both of these stocks outperformed the market over the past 12 months. AT&T's stock rose 5% and Apple's stock dipped only 2% while the S&P 500 dropped 9%. But will they keep generating better returns than the S&P 500 if the bear market drags on?

A couple counts cash together.

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Why the "new" AT&T is a safe bear market buy

Before it spun off DirecTV and WarnerMedia, AT&T's business was a confusing mix of telecom, pay TV, and media businesses. Its telecom business stagnated as it tried to challenge Netflix and other media companies in the crowded streaming market, but those loss-leading strategies crushed its margins and caused its debt levels to soar.

That's why investors cheered when it abandoned those costly plans and finally focused on upgrading its fiber and 5G networks. In 2022, this "new" AT&T gained 2.9 million postpaid phone subscribers, compared to a gain of only 201,000 postpaid phone subscribers at its larger rival Verizon. The expansion of its consumer-facing fiber segment has also been offsetting the slower growth of its wireline business, which is more heavily exposed to the macro headwinds.

AT&T expects its free cash flow (FCF) to grow from $14.1 billion in 2022, which easily covered its $9.9 billion in dividends, to over $16 billion in 2023. Analysts expect its revenue to rise 2% this year as its adjusted EPS declines 5%. But excluding the impact of higher pension costs and tax rates this year, its adjusted EPS would grow about 1%.

Based on those expectations, AT&T trades at just eight times forward earnings and pays a forward yield of 6.1%. That low valuation and high yield should make it an attractive alternative to fixed income investments like CDs, T-bills, and bonds.

Why Apple is still an evergreen investment

Apple still generates over half of its revenue from the iPhone, which goes through big upgrade cycles every few years. Its last major upgrade cycle occurred in fiscal 2021 as more consumers bought the iPhone 12 (its first family of 5G devices), but its growth cooled off in fiscal 2022 as it lapped those upgrades and encountered more COVID-19 lockdowns in China.

Analysts expect Apple's revenue and earnings to dip 1% and 3% this year, respectively, as its iPhone 14 sales stay soft and inflationary headwinds curb the market's appetite for new devices. Currency headwinds could exacerbate that pain.

But at the end of the first quarter of fiscal 2023 (which ended on Dec. 31), Apple was still sitting on $165 billion in cash and marketable securities -- which gives it plenty of room to make fresh investments, repurchase more shares, and raise its dividend. It generated $97.5 billion in FCF over the past 12 months, which easily covered its $14.9 billion in dividends during the same period and gives it plenty of room to raise its paltry forward yield of 0.6%.

Apple also reached 935 million paid subscribers across all of its services in the first quarter, which gives it a firm foundation to launch new products. Apple is widely expected to launch a new mixed reality headset this year, but the potential launch of that device hasn't even been baked into Wall Street's expectations yet. Apple's stock isn't cheap at 26 times forward earnings, but I believe it's still an evergreen investment that should continue to grow after the near-term headwinds dissipate.

The better bear market buy: AT&T

AT&T and Apple should both remain stable investments this year, but I believe the former is still a better bear market buy than the latter for three simple reasons. First, AT&T pays a more generous dividend and trades at a lower valuation. Its forward yield is also much higher than the 10-Year Treasury's current yield of 3.5%, so it should remain a decent alternative to high-yield savings accounts and fixed income investments as interest rates continue to rise. 

Second, AT&T operates a simpler business model that is less prone to cyclical headwinds. It also doesn't generate more than half of its revenue from a single product.

Lastly, AT&T doesn't do as much business in China as Apple, which relied on the geopolitically sensitive region for a fifth of its revenue last quarter. All of those strengths could make it a lot more appealing than Apple in a bear market -- which generally priortizes near-term stability over long-term growth.