It's tempting to avoid stocks in this bear market while interest rates remain elevated, especially when investors can easily get 3% to 5% guaranteed returns on CDs and Treasury bills. But those yields won't help you consistently beat inflation, and you could miss out on some massive gains when a new bull market finally starts.
Instead of shunning all stocks, investors should seek out companies that are well insulated from the macro headwinds by wide moats and evergreen brands. I believe these three resilient stocks -- Ferrari (RACE 2.39%), Hermès International (HESAY 1.56%), and Coca-Cola (KO 0.07%) -- tick all the right boxes.
Image source: Ferrari.
1. Ferrari
If you only buy one auto stock, it should be luxury supercar maker Ferrari for three simple reasons.
- First, its core customers are so affluent that they're largely resistant to inflation, rising rates, and other macro headwinds.
- Second, it's not struggling with supply chain issues like many other automakers because it only produces a few thousand vehicles every year.
- Lastly, Ferrari's pricing power enables it to consistently sell its vehicles at much higher gross margins than lower-end automakers do. That elasticity also allows it to comfortably raise its prices to offset any higher supply chain and production costs.
Between 2017 and 2022, Ferrari's annual shipments rose from 8,398 to 13,211 vehicles as its revenue grew at a compound annual growth rate (CAGR) of 8%. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin expanded from 30.3% to 34.8%, and its adjusted EPS grew at a CAGR of 13%.
Analysts expect Ferrari's revenue and adjusted EPS to grow 15% and 22%, respectively, in 2023. A major catalyst this year will be the recent launch of its all-electric Purosangue SUV, which already has a backlog of orders for at least the next two years.
Ferrari's stock isn't cheap at 41 times forward earnings, but its stable growth, resilience during economic downturns, high margins, and growth potential in the booming luxury EV market all justify that premium valuation.
2. Hermès
Another iconic European luxury brand, Hermès, is a no-brainer buy right now. Just like Ferrari, Hermès doesn't need to worry about inflation and other macro headwinds because its core customers aren't much bothered by economic downturns. It can also easily afford to charge higher prices to offset its elevated supply chain costs.
Hermès differentiates itself from other top-tier luxury companies like LVMH (LVMUY 1.15%) with two tactics.
- First, it produces most of its products in France through a tight network of artisan workshops instead of outsourcing all of its production to overseas factories -- as LVMH does with most of its leading brands. That focus, which results in some items being crafted from start to finish by a single artisan, enables Hermès to sell its products at sky-high prices and gross margins.
- Second, Hermès doesn't own a massive portfolio of secondary brands like LVMH does. It spends all of its cash cultivating the growth of its namesake brand, which prevents it from overdiversifying and diluting brand appeal.
This is a simple formula that generates consistent growth. Between 2017 and 2022, Hermès' revenue grew at a CAGR of 16%, its recurring operating margin expanded from 34.6% to 40.5%, and its net profit increased at a CAGR of 22%.
Analysts expect its revenue and net profit to grow 16% and 14%, respectively, in 2023. Its stock might seem pricey at 54 times this year's earnings, but it arguably deserves that high valuation.
3. Coca-Cola
At the other end of the pricing spectrum is Coca-Cola, which sells a wide range of beverages at low prices. Coca-Cola might initially seem like a shaky long-term investment because soda consumption rates are declining worldwide, but the company isn't a one-trick pony. It also sells brands of bottled water, tea, juice, sports drinks, energy drinks, coffee, and even alcoholic beverages.
Coca-Cola has also been constantly refreshing its flagship sodas with new flavors, healthier versions, and smaller serving sizes to attract new customers. As a result, its growth has remained remarkably consistent.
Its organic sales grew 16% in both 2021 and 2022 -- partly driven by the food-service industry's post-pandemic recovery -- and it expects 7% to 8% growth in 2023. The company expects its comparable EPS to grow 7% to 9% on a constant-currency basis in 2023 even as higher commodity costs squeeze its gross margins.
Coca-Cola's stock still looks reasonably valued at 24 times forward earnings, it pays a decent forward dividend yield of 2.9%, and it's a dependable Dividend King that has raised its payout annually for 61 consecutive years. So if you're looking for a no-brainer blue chip stock to simply buy and forget for a few decades, Coca-Cola easily fits the bill.
