In every bear market, there are a few survivor stocks -- those that withstand poor overall markets and emerge stronger than ever. Most have the following characteristics in common:
- Large market capitalization.
- Solid fundamentals.
- Necessary industries.
Take a look at this table, which shows some of the best survivors from the period of the 2000 bear market to the present.
|
Price Change, |
Price Change, |
Price Change, | |
|---|---|---|---|
|
Procter & Gamble (NYSE:PG) |
6% |
34% |
42% |
|
Clorox |
11% |
43% |
58% |
|
Johnson & Johnson |
16% |
24% |
43% |
|
Unilever (NYSE:UL) |
40% |
38% |
94% |
|
Colgate-Palmolive (NYSE:CL) |
6% |
15% |
22% |
|
S&P 500 |
(35%) |
25.7% |
(18%) |
In general, consumer staples companies tend to hold up during a bad bear market. That's because these companies provide necessary services that consumers will continue to use even in times of lower discretionary income.
In contrast, ponder the performance of companies such as Napster (NASDAQ:NAPS) and Priceline.com (NASDAQ:PCLN). Since Napster went public in 2001, it has lost more than 74% of its value. And Priceline has been even worse -- plummeting 89% in the past six years. These two companies are proof that bear markets can be worse for you than they have to be, particularly if your portfolio relies too heavily on companies that require higher consumer spending and better economic conditions.
Find the values
But it's not just the small-cap growth stocks that struggle. Blue-chip companies in cyclical industries tend to be more volatile during bear markets. The depreciated prices, however, can lead to some great buying opportunities.
|
Price Change, |
Price Change, |
Price Change, | |
|---|---|---|---|
|
Apple (NASDAQ:AAPL) |
(64%) |
401% |
80% |
|
Merrill Lynch (NYSE:MER) |
(18%) |
36% |
12% |
|
S&P 500 |
(35%) |
25.7% |
(18%) |
Consider that Apple and Merrill Lynch both had:
- A history of returning value to shareholders.
- Proven business models with high barriers to entry.
- Competitive advantages.
Yet from 2000 to 2003, both of them were out of favor with the market. Does this mean they were going bankrupt? No; in fact, they were getting stronger. Combine good operating results with poor stock performance, and all of these stocks have rocketed forward since 2003.
This strategy of buying great companies when the market has unfairly discounted them is called value investing, and it has worked for many legendary investors -- Warren Buffett and Benjamin Graham, to name two. But you don't need a legend to tell you what to buy; you can do it yourself.
Foolish bottom line
If you decide that you could use some help, however, you can take a free 30-day look at our Motley Fool Inside Value service. Advisor and analyst Philip Durell finds rewarding companies (such as Colgate-Palmolive) when they're trading at discounts. And subscribers reap the benefits -- his picks are beating the market by 2 percentage points on average. You can access all 43 of his newsletter picks with a no-obligation, free trial.
If your portfolio's been in the red because of this crazy market, maybe some survivor stocks could get you back on track. They're good in bull and bear markets alike. Click here to see if Inside Value can help you find them.
Fool sector head Shruti Basavaraj has learned to survive days without coffee, but just barely. She owns shares in Johnson & Johnson. Colgate-Palmolive is an Inside Value pick. Unilever and Johnson & Johnson are Income Investor recommendations. Priceline.com is a Stock Advisor recommendation. The Fool'sdisclosure policywill always survive.
