Savvy investors know there tends to be great bargains whenever the market suffers a "correction" -- generally regarded as a drop in overall value of between 10% and 20%. (A drop of more than 20% is considered a crash.)
Thus, it can be smart to maintain a watch list of stocks you'd like to own for the right price so that you can refer to it when the market heads south. Here are three solid portfolio candidates that you might want to keep an eye on.
1. NextEra Energy
NextEra Energy (NEE 1.10%) is a company well worth knowing about and adding to your watch list. The company bills itself as the world's largest utility company, and it can claim that in large part due to its ownership of the Florida Power & Light Company, which is itself "America's largest electric utility that sells more power than any other utility ..."
There's a lot to like, or love, about NextEra Energy. For starters, it's a dividend-paying stock, with a recent yield of 2.5%. Better yet, it's dividend is growing, with an average annual increase of about 11% over the past five years and a recent payout ratio of 52% that suggests plenty of room for further growth. It's also "the world leader in electricity generated from the wind and sun" and a leader in battery storage, too.
The stock is fairly-to-appealingly priced, with recent price-to-sales (P/S) and price-to-earnings (P/E) ratios both below their five-year averages. A market drop could push the stock down into hard-to-resist territory.
2. Laboratory Corp. of America
Laboratory Corp. of America (LH 0.70%), also known as Labcorp, with a recent market value topping $19 billion, is a titan in the field of diagnostic testing. It also operates in drug development but is spinning off that business as a company called Fortrea. In diagnostics, it's part of a duopoly with Quest Diagnostics, allowing these two giants to compete effectively against smaller rivals due to their economies of scale.
A quick glance at recent earnings results may lead you to think that Labcorp's overall business is challenged, with overall revenue down nearly 3% year over year in the company's first quarter. But it's worth noting that a decline in COVID-19 testing is a large contributor to that drop, and Labcorp's base business is still chugging along quite well. Revenue of $14.9 billion in 2022 is 28% above 2019 levels, reflecting a solid average annual growth rate of 9%.
Labcorp's stock sports a P/S ratio and a forward-looking P/E ratio that are both below five-year averages but not far below. Thus, holding off a bit and waiting for a lower entry price might be the best move for now. Note that the stock does offer a dividend that recently yielded 1.3%, and a lower stock price will push that yield up.
3. Intuitive Surgical
Intuitive Surgical (ISRG -1.13%) is an exciting company and stock. It operates (kind of literally!) in the world of robotic surgery equipment, and it's an 800-pound gorilla in that world. Its da Vinci system is installed in more than 7,700 hospitals around the world, and there have been more than 12 million procedures performed with it -- more than 1.8 million in 2022 alone. The company placed more than 1,200 da Vinci systems in 2022, reflecting solid growth. On top of that, it has a newer Ion endoluminal system for lung biopsies. One of the beautiful things about Intuitive's business model is that once it sells a system, it gets to keep reaping revenue from sales of service contracts, accessories, and supplies.
In Intuitive's first quarter, revenue rose 14% year over year to $1.7 billion, while the installed base of da Vinci machines grew by 12%, and procedures performed soared by 26%. The stock has been a solid performer, averaging annual growth of nearly 20% over the past decade. It's not unreasonable to expect overall double-digit growth in the coming years, but that's more than priced in at recent stock-price levels. The recent P/S ratio was about in line with the five-year average, but the current and forward-looking P/E ratios were well above that average. A market pullback would offer more attractive entry points.
These are just three of many compelling companies out there. It can pay off handsomely to do some digging and fill a watch list with lots of them, so that you can notice when a few or many drop into tantalizing territory. Market downturns are only traumatic for those who are not prepared for them.
