When a particular stock is declining, investors usually don't rush out to buy it. They may be right if the company has significant problems likely to weigh on its long-term performance. But, in many cases, a share price dip doesn't indicate such a situation. The company might face near-term challenges, but the broader picture still remains bright -- and that gives us the opportunity to snap up shares at a great price.
That's the case today with online pet supply shop Chewy (CHWY 2.99%) and healthcare giant Abbott Laboratories (ABT 0.63%). They both have faced headwinds in recent times, but in spite of this, they're still growing revenue and offer solid long-term prospects. Let's take a closer look at these two incredible stocks to buy on the dip.
1. Chewy
Chewy sells just about everything your pet needs -- from food to toys, and even prescription drugs and pet insurance. The company makes it easy for you to shop at the e-commerce site and keep coming back through its Autoship program. This allows you to sign up for regular deliveries of products you use the most, such as pet food.
In fact, Autoship makes up more than 75% of the company's sales, so it's clearly a feature customers and Chewy both like. Importantly, Autoship sales rose 18% in the most recent quarter.
Chewy reached a key milestone last year when it became profitable, and it's also been increasing its free cash flow.
CHWY Net Income (Annual) data by YCharts
So, what's weighing on Chewy these days? Higher inflation is hurting customers' wallets, and that's hurt Chewy's ability to significantly grow its active customer base. The concern is some customers may be turning to stores selling cheaper pet products, such as Walmart. But it's important to keep in mind that today's economic troubles are temporary, and Chewy's variety of products and services and the convenience of Autoship should stand out over time.
In spite of the economic environment, Chewy still increased sales in the double digits during the quarter, and net sales per active customer rose in the double digits too. And that means Chewy shares look very reasonably priced today, trading for 38 times forward earnings estimates. So, they make an excellent buy on the dip.
2. Abbott Laboratories
Abbott Labs' strength is in its diversification. The company's business units of medical devices, diagnostics, nutrition, and established pharmaceuticals have helped it to steadily grow revenue over time -- even if one particular business reaches a stumbling block.
ABT Revenue (Annual) data by YCharts
Right now, for instance, diagnostics sales are on the decline amid a drop in coronavirus testing sales. But sales for Abbott's underlying base business rose more than 11% in the most recent quarter thanks to star products such as the Ensure nutrition brand and the FreeStyle Libre continuous glucose monitoring system.
Sales in the quarter climbed in medical devices, nutrition, and established pharmaceuticals -- and if we exclude coronavirus testing, sales rose in the diagnostics business year over year.
Abbott also continues to gain regulatory clearance for new products, adding to the future revenue opportunity. For example, the U.S. Food and Drug Administration recently approved Abbott's AVEIR pacemaker system -- the world's first dual-chamber leadless system.
You'll also like Abbott for its dividend. As a member of a group known as the Dividend Kings, Abbott has increased its dividend for more than 50 years. This is key because it indicates you can count on passive income growth year after year. Abbott pays a dividend of $2.04, at a yield of 1.95%. That's higher than the dividend yield of the S&P 500.
Abbott trades for about 23 times forward earnings estimates, a bargain for a solid earnings and dividend track record. So now is a great time to buy this top healthcare player and hold on for the long term.
