Although some signs indicate we have emerged from the last bear market, considering what you might do in the next one is never a bad idea. It's not a question of if there will be a next bear market; it's a matter of when. With the inevitability of it, investors must be prepared, as bear markets can provide fantastic buying opportunities.
So if you're looking for a starting point as a list of stocks to buy during a bear market, look at these four.
1. Alphabet
When a bear market strikes, it's best to look at some dominant companies that can produce a lot of cash. Alphabet (GOOG 9.96%) (GOOGL 10.22%) fits that description nicely, although its business may struggle in a bear market. With a significant chunk of its business wrapped up in advertising, its revenue will weaken and cause the stock price to fall.
However, as the economy recovers, Alphabet will see a renewed interest in its advertising properties and generate strong revenue growth again.
If you purchase Alphabet during a bear market, it's not because the stock is stable; it's because it has a strong recovery chance. That price drop will also allow management to use its cash hoard to ramp up stock repurchases, just like it did during the latest bear market.
GOOGL Stock Buybacks (Quarterly) data by YCharts.
With Alphabet's robust business model, it will survive the next bear market and emerge stronger. While you may see short-term pain, Alphabet is an excellent buy during a bear market.
2. CrowdStrike
While many high-flying tech stocks will likely get smoked during a bear market, it won't be because of lost business. CrowdStrike (CRWD 2.03%) provides cybersecurity software for its clients, which isn't optional for clients as they look to save money during a challenging economic period.
CrowdStrike's stock will undoubtedly decline, but its business will stay intact. As a result, it's an excellent buy during a bear market as the actual business won't perform poorly; it will just be the stock.
Although CrowdStrike hasn't repurchased its shares yet as a public company, its impressive free-cash-flow margin of 33% allows it to generate loads of cash. Should its stock get too cheap during a recession, it can utilize these cash flows to repurchase shares, which should help boost earnings.
Although CrowdStrike's stock may see a significant price decrease, investors should use the next bear market as a buying opportunity to purchase one of the market's top cybersecurity companies.
3. Visa
During the bear market of 2022, few stocks stayed more steady than Visa (V -0.23%). Although many were worried about consumer spending falling off a cliff, it never did. While the next bear market may be different, consumers will still have to purchase basic necessities, and they are turning to plastic more often than cash for these expenses.
This trend has allowed Visa to post an impressive increase in revenue over the past decade.
V Revenue (TTM) data by YCharts.
While Visa may see a decrease in cross-border transaction volume (a significant profit driver in the business), once again, that's likely a temporary decrease. If Visa's stock price declines, it can use some of its $14 billion cash pile to ramp up repurchases.
Visa's stock never looks that cheap, but if you can purchase it for under 30 times earnings in a bear market (it currently trades at 30.3), it has historically been a great price to buy the stock.
4. Adobe
In a similar mindset to CrowdStrike, Adobe (ADBE 0.87%) is a software company that operates on a subscription basis. Thousands of businesses depend on Adobe's products daily, and many clients would have to go out of business before cutting Adobe's product suite.
Because the company bills on a subscription basis, clients can't just wait to upgrade the software. Because Adobe has locked in its customer base, it makes a strong purchase in a bear market.
The stock will likely get hit in sympathy with the rest of the market, but that is just another buying opportunity for a company that didn't see its revenue growth budge during the last bear market. If you picked up Adobe shares at a historically cheap 27 times earnings at the peak of the last bear market (or the current one, depending on how you define it), you've almost doubled your money already.
If you can pick up Adobe shares in the mid-30 price-to-earnings range, you've got a steal for a company that has executed well over the past decade.
This is just a starting list, but it has a clear theme: Look for companies that will decrease with the market but won't see any business effect. If you can pinpoint those investments, you can succeed when the next bear market strikes.
