Patience has proven invaluable to long-term investors, with every stock market correction, crash, and bear market eventually put into the rearview mirror by a bull market rally. But over shorter periods, Wall Street's benchmark index, the S&P 500 (SNPINDEX: ^GSPC), has proved unpredictable.
In successive years since this decade began, the S&P 500 has bounced between bear and bull markets. Although some investors define a bull market as one which has rallied at least 20% from a recent low, there's little question that a new bull market has emerged when a major stock index reaches a new all-time high. With the S&P 500 recently taking out its previous high, we can proclaim without a shadow of a doubt that we're in a bull market (which actually began more than 15 months ago).
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While a major stock index hitting a new high might turn some value-seeking investors off, rest assured that bargains can still be found. This holds true for younger investors seeking to put their money to work in game-changing businesses, as well as retirees who value capital preservation, but also still want to grow their nest egg.
What follows are three perfect stocks retirees can confidently buy hand over fist in the new bull market.
Visa
The first genius stock that retirees can fearlessly add to their portfolios is world-leading payment processor Visa (V -0.23%).
Every single publicly traded company has potential headwinds. For Visa, the biggest concern is that it's cyclical. If the U.S. or global economy fall into a recession, the expectation would be for consumer and enterprise spending to taper. Less spending and fewer transactions would be a recipe for weaker growth or possibly even revenue contraction for Visa and its peers.
But here's the thing: Recessions are disproportionately short-lived events. There have been a dozen recessions since the end of World War II, and only three have managed to endure 12 months. Of the remaining three, none lasted longer than 18 months. Comparatively, most periods of expansion stick around for multiple years, with a couple reaching the decade mark. Aggregate consumer and enterprise spending are pushing higher over long periods, which is a seemingly foolproof investment thesis in favor of Visa.
It also doesn't hurt that Visa's management team has kept the company focused on payment processing and avoided the temptations of lending. Though I have little doubt that Visa would succeed as a lender and generate plenty of interest income, it would also expose the company to loan losses and credit delinquencies during recessions. Sticking to its bread-and-butter maximizes Visa's financial flexibility and minimizes any pain felt during economic downturns.
Additionally, you're getting the undisputed leader in payment facilitation when you buy Visa stock. According to Nilson Report, Visa accounted for nearly 42% of credit card network purchase volume in the U.S. in 2022. The U.S. is the largest market for consumption globally.
Furthermore, Visa has a multidecade growth runway in underbanked emerging markets, such as the Middle East, Africa, and Southeastern Asia. It has more than enough capital and operating cash flow to organically expand into these markets, or can make acquisitions to rapidly broaden its reach, as it did in 2016 when it purchased Visa Europe.
Visa offers retirees the ability to enjoy sustained double-digit growth potential, yet its stock is 5% less-volatile than the benchmark S&P 500.
Johnson & Johnson
A second stock that's ideal for retirees to buy hand over fist in the new bull market is healthcare conglomerate Johnson & Johnson (JNJ -0.46%), which is better known by its shorthand, "J&J."
Whereas the S&P 500 and Dow Jones Industrial Average are thriving in bull markets, J&J has lagged these respective indexes. The reason? Johnson & Johnson is facing up to 100,000 lawsuits over its now-discontinued talc-based baby powder that allege it causes cancer. In addition to settling a $700 million investigation into its baby powder by more than 40 states, it's had two settlement attempts (the latest offered $8.9 billion to settle the aforementioned 100,000 lawsuits) thrown out in court. Wall Street doesn't like unknowns, and there's no certainty as to when this litigation will have a resolution.
The solace for current and prospective J&J investors is that there may not be a more operationally sound company on the planet. It's one of only two publicly traded companies that currently holds the coveted AAA-credit rating from Standard & Poor's (S&P), a division of the more-familiar S&P Global. The highest credit rating possible signals that S&P expects J&J to be able to service its outstanding debt and liabilities with ease.
What's really been powering Johnson & Johnson's success is its focus on pharmaceuticals. For more than a decade, management has increased the company's reliance on brand-name drugs. Even though novel therapies have finite periods of patent exclusivity, they generate juicy margins and afford J&J strong pricing power. Since Johnson & Johnson is bringing in a mountain of operating cash flow each year, it's been able to aggressively reinvest in novel research, as well as forge collaborations to avoid patent-cliff issues.
Another reason J&J has been such a superstar investment for decades is the continuity it's seen in key leadership positions. You only need two hands to count how many CEOs J&J has had since its founding 138 years ago. No carousel at the top means consistency in the bottom line.
I'll also add that healthcare is an exceptionally defensive sector. People don't stop needing prescription medicine and medical devices just because the U.S. or global economy has weakened.
With Johnson & Johnson, retirees are getting a company that's only 53% as volatile as the S&P 500, yet yields 3% and has increased its base annual payout for 61 consecutive years.
Image source: Getty Images.
AT&T
The third perfect stock retirees can buy hand over fist in the new bull market is telecom stock AT&T (T 1.02%).
Similar to J&J, AT&T struggled in 2023 while the major indexes galloped to double-digit gains. AT&T's issues can be traced to rapidly rising interest rates, which threaten to make debt refinancing costlier, and a Wall Street Journal report from July that alleged lead-sheathed cable use by legacy telecom companies could lead to pricey replacement and environmental costs. While these are genuine issues that shouldn't be ignored, they've also been overblown.
For instance, AT&T has noted that only a small percentage of its network utilizes lead-clad cables. Further, it's not found any environmental/health hazards associated with lead-sheathed cables still in use. If there is any financial liability to be had for AT&T, it would almost certainly be determined in the U.S. court system, which would probably take years. In other words, the lead-sheathed cable issue isn't a near-term concern for AT&T.
As for concerns about higher interest rates, investors need only look at AT&T's balance sheet for signs of comfort. When AT&T spun out content arm WarnerMedia in April 2022, which was subsequently merged with Discovery to create new media entity Warner Bros. Discovery, the new company took responsibility for certain lots of debt previously held by AT&T. All told, AT&T received $40.4 billion in concessions (including cash payments). Inclusive of organic pay-down, AT&T's net debt has fallen from $169 billion to just a shade below $129 billion in under two years. It's in considerably better financial shape than it was in 2022.
On top of an improved balance sheet, AT&T's operating performance is benefiting from the 5G revolution. Faster download speeds have encouraged users to consume more data. Data just happens to be the primary margin driver for AT&T's wireless segment.
Last year also marked the sixth consecutive year that AT&T added at least 1 million net broadband users. Even though broadband isn't the growth driver it was two decades ago, it's the perfect dangling carrot to encourage service bundling, which ultimately boosts margins and cash flow for the company.
Retirees who buy AT&T stock are getting an inexpensive (8X forward-year earnings) and time-tested company that's 28% less-volatile than the S&P 500 and doling out a yield in excess of 6%.
