To paraphrase Benjamin Graham, the man who helped to train Warren Buffett, a good company can be a bad investment if you pay too much for it. Basically, valuation matters. However, you need to prepare ahead of time when it comes to buying great companies, because they don't go on sale very often. And when they do take a dip they can be hard to buy because things could be pretty bleak.
That's why you need to make a wish list of stocks to buy, which today includes three companies -- Hershey (HSY -0.53%), Procter & Gamble (PG -0.78%), and Nucor (NUE -0.26%). Here's why these three stocks are worth buying on the dip.
1. Hershey is dominant in the U.S., and looking for more
When you hear the name Hershey, you probably think of chocolate, which makes complete sense. It is the dominant player in the U.S. market, with names like Hershey, Reeses, and Kit Kat. The domestic confection business accounts for around 80% of sales. This is a fairly strong business given that people love sweets. But it isn't the only business the food maker operates.
Roughly 9% of sales come from the company's international business. This offers growth potential as Hershey expands its reach overseas. It hasn't been a great profit center so far, but given the strong brands the company owns there's likely opportunity here. On top of that, the company has also been expanding into salty snacks with brands like Skinny Pop and Dot's Pretzels. This business segment accounts for around 10% of sales. Like international, salty snacks is a relatively small division, but one that affords the company growth opportunities beyond its core U.S. confection business.
Hershey's stock is down around 30% from its peak in May, pushing the dividend yield up to 2.5%. That yield is actually historically attractive, though perhaps not a screaming buy signal for long-term dividend investors (3% would be near the top end of the historical yield range). The stock price drop, meanwhile, has been caused by fears over cocoa prices and the impact that weight loss drugs might have on eating habits. Commodity prices rise and fall, but the potential adverse impact of weight loss drugs is a new development. If you believe people will continue to snack, though, you might want to keep watching Hershey (or just pull the trigger now).
2. Procter & Gamble expands via innovation
Procter & Gamble is one of the largest consumer staples companies in the world, with a focus on the high end of the market. It owns brands like Bounty, Tide, and Crest, among many others. The dividend yield is also around 2.5% today, which is about the middle of the road historically speaking. Roughly 3% or a bit above would be a more attractive entry point. Indeed, the stock is only about 10% below its all-time highs right now.
What's exciting about Procter & Gamble is its long history of innovation. P&G has the resources to invest in research and development, marketing, and distribution to create value via "new" and "improved" products. That makes it a valuable partner for retailers. This focus also allows it to charge more for its products since they generally offer tangible advantages compared to other options. As an indication of the company's long-term success, it has achieved Dividend King status. That doesn't happen by accident, and if you have a chance to buy this stock on a dip it would be well worth adding to your portfolio.
3. Nucor is always looking to grow
Nucor isn't a household name, but it is one of the largest and most diversified steel companies in North America. It uses modern electric arc mini-mills, which are more flexible than older blast furnace technology. This allows Nucor to more easily deal with the industry's typical cyclical swings. The stock's yield at around 1.4% is historically pretty low. But given the company's tie to the economy, there's a good chance that a recession will lead to a buying opportunity.
NUE Dividend Yield data by YCharts
The key here is Nucor's long focus on growing its business through expansion and acquisition. Basically, the steel giant is always looking for ways to increase its scale. For example, between 2020 and 2022 the company spent roughly $10 billion, half on internal investments and half on acquisitions. A key focus is expanding into higher-margin steel products, which allow the company to use its own bulk steel production. The constant push for growth, meanwhile, has translated into ongoing business and dividend growth (the company is a Dividend King). If there's a recession, this is one industrial stock you'll want to take a closer look at.
Be prepared to act
Hershey may be worth a look today, while P&G and Nucor aren't nearly as attractive. That said, all of these companies have great businesses and strong histories. They are the types of companies you want to own if they happen to go on sale. Prepare now by putting them on your wish list so you won't shy away when it is time to buy, which will likely come during a tough spell for their businesses or for the broader market.
