Even after recovering from October 2022 lows, the S&P 500 index is down by over 13% since the start of 2022. Stocks of many good companies have also corrected during the recent bear market. But a bull market is coming, and when it does, shares of those companies could outpace the index.
Tesla (TSLA 4.96%) and Brookfield Infrastructure (BIP -1.33%) (BIPC -0.47%) are two businesses that have thrived even while their stocks have struggled. Both should see their share prices recover greatly when the market turns, though for different reasons. Owning both is a good way to diversify and prepare for the next bull market.
1. More than just cars
Tesla shares have been cut in half over the past year. That drop has occurred even as the business has thrived. It makes sense, though, considering how much speculation and future growth were being priced into the stock. The good news for investors now is that the expected growth has come to fruition, and the company is generating tons of cash and profits. That cash flow is now being used to expand the business even further.
In addition to recently announcing plans for its fifth electric car plant to be built in Mexico, Tesla is investing billions into its energy segment. Earlier this year, the company said it would invest an additional $3.6 billion in its Nevada gigafactory to add battery production capacity. The site produces battery cells for its EV offerings as well as energy modules and battery packs for energy storage. That energy segment has been growing quickly and contributing more revenue over the past year.
Data source: Tesla. Chart by author.
Energy generation and storage revenue represented nearly 7% of revenue in the first quarter. That was twice as much as it contributed in the prior-year period.
Another bull market will likely come with a robustly growing economy. That will boost Tesla's vehicle sales but will also mean more business for its other divisions. No one knows if the stock will bounce back quickly or if it will even move higher in the near term. But if the underlying business continues to excel, it would be wise for investors to own Tesla shares as the stock should follow that success.
2. Getting a boost from the Fed
Another stock that could jump higher in the next bull market is Brookfield Infrastructure Partners. Its shares have dropped, partly because the cost of capital has increased as the Federal Reserve has increased interest rates as it tries to cool the economy and inflation. That would seemingly be a bad environment for Brookfield to add investments, yet the business is thriving. When interest rates eventually drop, it should provide even more of a boost for Brookfield and its shares.
Yet Brookfield continues to grow its business even in the current interest rate environment. The company just announced the $13.3 billion takeover of the world's largest owner and lessor of intermodal containers. Triton International adds transportation logistics infrastructure to Brookfield's portfolio of global assets that already includes transportation as well as utilities, energy transmission and storage, and data transmission.
But while the company continues to invest and grow -- its funds from operations (FFO) increased 12% in 2022 versus 2021 -- Brookfield's stock has floundered. That has resulted in a dividend yield of about 4.2% for the partnership shares. Investors can own Brookfield through one of two entities: the partnership shares (BIP) or the corporate shares (BIPC). The corporate shares come at a premium, likely because of the simplicity of owning stock versus partnership shares. That premium is also why Brookfield used its corporate shares as currency for the stock portion of the Triton transaction.
The partnership shares add a bit of complexity to tax reporting. But for those who are comfortable receiving and filing K-1 documents, the higher dividend yield and potential for price appreciation shouldn't be overlooked.
Brookfield management has proven to be excellent at capital allocation. They invest, let the assets grow, then recycle the returns into new investments. If interest rates begin a downward cycle as a bull market returns, that should allow the company to more efficiently add assets. Investors who buy the stock now can be positioned to share in the returns from those investments and can enjoy a solid dividend yield along the way.
