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11 steady rising stocks to beat the bear market and beyond

July 14, 2022, 9:00 AM UTC
Fortune Quarterly Investment Guide 2022 Q3
11 stocks to beat this bear market.
Illustration by Jamie Cullen

These are eerie days for stock investors. The multiyear bull run stumbled badly as 2022 began, and now the S&P 500‘s decline from its January peak hovers around the 20% level—the dreaded borderline for a bear market. But the big question looming in the background is this: Where can stock investors put their money during such an inclement interlude, one that might get far worse? What shares stand the best chance of holding their own and perhaps growing when better times return? After all, every bear market in retrospect looks like a buying opportunity for high-quality names that were beaten down and then staged a solid recovery.

To find those promising picks, we first screened for stocks with a palatable price/earnings ratio (P/E), the metric investors use to gauge the affordability of a stock. By palatable, we mean less than or not much more than the S&P 500’s multiple, 21 times 12-month trailing earnings. The 11 names also needed to have a good business model that stands to let them get through rocky days and thrive into the future. A splendid dividend yield was a bonus but not a must for this crop. Below, 11 individual stocks with the chops to persevere.

Apple

The mightiest sequoia on Wall Street, Apple (AAPL) stands out in a way other than size: It’s relatively cheap for a tech giant, and it’s on sale. Like its peers, Apple stock has taken a shellacking during the current bear market.

After an enormous run-up, more than quadrupling from 2018 to the end of 2021, Apple this year has dipped 18%. With a current multiple of 22, Apple has become a lot more affordable; at the end of 2021, Apple’s P/E stood at 30.

With a stock market capitalization of almost $2.4 trillion, Apple remains the U.S.’s most valuable company. For investors, the chances are good that the stock will retrace its losses, and then some. As Wedbush Securities wrote recently, “Apple remains our favorite tech name as we reiterate our outperform rating,” predicting that within the next 12 months, the shares should reach $200. That would top its late-2021 peak, $179.

Meanwhile, the company’s fundamentals remain undiminished, despite the market’s current distaste for tech stocks. Revenue and earnings continue to increase, with sales hitting a record $97.3 billion in its last reported quarter. The iPhone makes up more than half of Apple’s revenue, and a new iteration is due out this fall. Apple has warned that the pandemic lockdowns in China, a huge market for the smartphone, could hurt current sales, but Wedbush expects the Chinese strictures to be eased up ahead.

Any economic troubles ahead shouldn’t hinder Apple’s progress, in Wedbush’s view: “While the nervous market backdrop is creating a fearful environment for tech stocks, we believe Apple’s growth story remains well intact despite the shaky macro.”

AutoZone

Vehicle sales usually suffer in a recession. But there’s one corner of the automotive realm that does well then: auto parts. That’s because people always need their rides repaired, in fair economic weather or foul. And the need for repair work will be even more urgent in coming months.

The age of the U.S. auto fleet is 12.2 years, an all-time high, by the estimate of S&P Global Mobility. The ongoing microchip shortage—cars run on semiconductors, along with much everything else these days—and other supply-chain woes are to blame. This suggests that a plethora of breakdowns lie ahead. Keeping the car running is a must for consumers regardless of the economy.

Auto parts retailer AutoZone (AZO) is well-positioned to take advantage of the situation. Morgan Stanley recommends the supplier, calling it one of “the defensive stocks with offensive characteristics.” Even in a recession, Morgan Stanley thinks, the company will have good pricing power: the ability to raise what it charges customers without driving them away. The automotive parts retailer has thousands of outlets in the U.S., Brazil, and Mexico, which allows it to make timely deliveries.

AutoZone stock didn’t suffer at all during the 2008–09 financial crisis, when the S&P 500 fell by half. With a below-market P/E of 19, you’d hardly know that the stock has been on a tear for some time, rising fourfold over the past five years. Even in snake-bit 2022, it is up 4%. Earnings and revenue have been consistently strong, and Morgan Stanley sees no change in that dynamic.

Broadcom

In the annals of technology high fliers the bear market has punished, Broadcom (AVGO) stands out. “They’ve been beaten to a pulp,” says Dave Gilreath, chief investment officer of Innovative Portfolios. The once spiraling stock has lost almost 28% this year. That’s a lot worse than the broad S&P 500, down 19%, and the information technology sector, off 24%.

Perhaps the market is reacting to Broadcom’s lust for acquisitions, an expensive exercise. The company is best known for its semiconductors. It sells a lot of chips to Apple for the iPhone and to industrial companies. The latest planned acquisition is a whopper: The company agreed in May to buy cloud-computing powerhouse VMWare, for $61 billion, one of the priciest tech deals ever. Another possible turnoff is that Broadcom has a lot of leverage, with a debt-to-equity ratio of 1.88, hardly ruinous but high. Its credit rating is BBB-, one step away from junk.

Still, there’s a lot of good in Broadcom that investors aren’t seeing. While its P/E is an above-market 25, that’s still pretty reasonable for a tech outfit. Factor in its expected earnings and its forward P/E is only 12. Assuming the latest deal goes through, Broadcom’s sturdy business model should improve even further. “With VMWare, half of Broadcom’s revenue will be in software,” double the current level, says Gilreath. And that should please investors, not repulse them, he argues. VMWare’s signature software is subscription-based, which spells recurring revenue.

Even without VMWare (the deal is expected to close in late 2022 or early 2023), Broadcom’s fundamentals are good: rising revenue and earnings and a 32% net profit margin. And it has been generous with shareholders, points out Nancy Tengler, chief investment officer of Laffer Tengler Investments, thanks to stock buybacks and dividend increases. “The market,” she adds, “needs to catch up with Broadcom.”

Chewy

Chewy (CHWY) is the Amazon of animal care. The pet supply company benefited enormously from the stay-at-home ethos of the early pandemic, soon after its June 2019 public offering. Its online delivery service spared customers having to walk the aisles of pet stores. Selling everything from collars to cat food, its growth “should remain intact,” according to Wells Fargo Securities.

The stock rose 2.5 times from the pandemic’s start until early 2021, then gradually began to deflate as investors figured a reopening economy would dull online sales. Wrong. Its revenue lately has more than doubled since the plague’s onset, and for the first fiscal 2022 quarter ending in May, it delivered 14% sales growth. Net income has been scarce at the fast-growing company, which is a typical condition, but Chewy did post positive earnings for the most recent period. 

Given its growth trajectory and business model, odds are that the company should do well. Chewy has a subscription system, which makes revenue more predictable than depending on spot purchases. This arrangement “looks poised to capture a disproportionate share of online sales, with the firm building a strong brand around customer service and perceived quality,” writes Morningstar analyst Sean Dunlop.

Wells Fargo has a Chewy price target of $55 per share for the year, which should return it to near where it was at the start of 2022. It is down 28% in 2022. That, of course, is nowhere close to its apex last year of $114, which likely was the product of temporary euphoria amid the bull market at the time.

Coca-Cola

Things indeed seem to go better with Coke, as the old ad jingle went. Ahead this year by 8.6%, stock in Coca-Cola (KO) outperformed the market handily, in particular the rest of its consumer staples category (down 6%). Archrival PepsiCo is flat for the year.

In recommending Coca-Cola shares, Jan Szilagyi notes that they also rose during the dot-com bust and the great financial crisis. Coke did drop during the brief 2020 market slide, when pandemic-spooked consumers didn’t venture out for soft drinks, says the Szilagyi chief executive and cofounder of Toggle, the artificial intelligence-driven stock-picking service.

“Normally, Coca-Cola is not very exciting” as a stock, Szilagyi finds. “But six months into a bear market, it is an easy investment to make.” An analyst report from finance company Edward Jones lauds Coke for “doing a solid job reinvigorating its core carbonated soda business, with new sugar-free offerings and smaller can sizes.” Coca-Cola is diversifying its product line, such as by adding Costa Coffee, which it bought in 2019. The soda maker also is making a strong push into emerging markets, where growing middle classes like prepackaged beverages.

Conagra Brands

People also don’t stop eating in recessions, Szilagyi says. That’s why he recommends Conagra Brands (CAG), which has a batch of well-known products such as Birds Eye, Duncan Hines, and Reddi-wip. He expects the stock to hold up well.

But it isn’t a growth stock, by any means. Conagra has stayed range-bound, mostly between $30 and $35 per share, since the pandemic began. This year, aside from a dive in March along with much of the market, Conagra has been pretty flat. Unlike the rest of the market, it isn’t in negative territory.

Sales have been robust, although inflation shows signs of nibbling at earnings. The third quarter, ending in February, had 5% sales growth, topping analysts’ expectations. But management reduced full-year adjusted-earnings expectations to $2.35 a share, down from around $2.50, thanks to inflation and supply-chain snarls. 

One terrific aspect of Conagra, in Szilagyi’s eyes, is its lush dividend yield, 3.5%. Plus, the P/E is pretty good, at 16.

H&R Block

“Taxes don’t go down in a recession.” That’s why Brian Frank, head of mutual fund firm Frank Funds, likes H&R Block (HRB), the tax prep folks. In the recent tax-filing quarter, ending March 31, it topped analysts’ expectations and increased its revenue forecast for the current fiscal year.

The key to its existence, of course, is that tax paying is confusing and difficult. H&R Block’s major competitor is Intuit-owned TurboTax, software for the do-it-yourself filers. (Most Americans use accountants in private partnerships.) And while Block also has a software DIY offering, its major advantage is some 12,000 offices where people can get face-to-face help. In recent years, the company has branched into year-round financial services, with a mobile bank called Spruce and a debit card, plus an online accounting unit aimed at small businesses.

Block’s stock price has been trending upward for a long time, and this year it has catapulted 60%. That said, it changes hands at a cheap P/E of 12, showing that earnings have kept pace with the stock appreciation.

Lockheed Martin

Suddenly, the U.S. and other Western powers are hankering to boost their defense budgets, and that is martial music to the ears of aerospace giant Lockheed Martin (LMT). The world’s largest military contractor, Lockheed should thrive as a result. Russia’s invasion of Ukraine and other threats globally have “demonstrated the tremendous importance of an effective deterrent to aggression,” the company’s chairman and CEO, James Taiclet, remarked in a statement.

An attractive investment feature is that Lockheed stock is inexpensive, with a P/E of only 13, despite the shares’ 18% jump this year. Defense stocks move up and down in tune with the geopolitical atmosphere and Washington budget priorities. In light of the Ukraine war, the Biden Administration and Congress are pushing up the Pentagon budget. What’s more, European allies that have long resisted sizable defense spending, are reversing that stance.

Impressed with the company’s range of offerings, notably the F-35 fighter now entering service, Vertical Research Partners recommends the stock. As the main contractor for the F-35, Lockheed is in charge of the military’s biggest procurement program.

Although defense spending boosts will help Lockheed in years ahead, the payoff will be incremental. Nonetheless, analysts are optimistic that the company will sweeten its share-buyback campaign, which should help lift the stock price. Wall Street also believes that Lockheed is scrapping its February bid to acquire Aerojet Rocketdyne Holdings due to federal regulators’ opposition, which also will free up cash for share repurchases.

Regeneron Pharmaceuticals

Biotech stocks have a long history of boom-and-bust. Right now, after a slide, we seem to be in the early stages of a new boom phase. And one of the biotech stars, Regeneron Pharmaceuticals (REGN), is a bargain, with a P/E of just 9 and stock trading below its peers.

RBC Capital Markets believes it is undervalued and, once the market realizes that, RBC analysts say it should rise 7% this year. Thus far in 2022, Regeneron stock is down slightly, off 3%, while the biotech field is up collectively by around 3%.

Regeneron began in 1988 with pioneering studies of how genetics could regenerate damaged blood vessels and organs. Lately, this font of innovation is exploring new ways to enlist the immune system to fight cancer. Other efforts include exploring how genetic treatments can protect against obesity. Its purview is broad as it seeks remedies for cancer, chronic pain, asthma, and infectious diseases such as COVID-19 and Ebola.

But there’s one recent problem it has had to overcome, a hitch that explains the low multiple: Regulatory action put a hole in Regeneron’s first-quarter sales and earnings. The Food and Drug Administration yanked its emergency-use authorization of a strong-selling coronavirus antibody therapeutic, REGEN-COV. The agency said the treatment lacked the expected efficacy against the Omicron variant. On the news, the stock tumbled almost 15%. It has been inching back since June.

RBC and many investors realize that the company has a whole bevy of high-performing products with more on the way, enough to overcome the REGEN-COV deficit. Meanwhile, sales of other drugs remained healthy, such as its macular degeneration drug Eylea and antiasthma and skin disorder treatment Dupixent, in partnership with Sanofi.

UPS

The brown trucks and brown-uniformed delivery people seemed ubiquitous when the U.S. was locked down in early 2020. These days, with the stay-at-home mindset ebbing, United Parcel Service, better known as UPS (UPS), has the pricing power to raise prices without any customer falloff. Revenue and earnings continue to increase.

Helping its efficiency, the delivery giant has a new logistical algorithm that reroutes trucks to get around traffic and other road problems. Plus, UPS has started its own version of Amazon Locker, where working people who might not be home during the day can pick up deliveries at local stores. The company’s infrastructure is impressive: It delivers 5.5 billion packages yearly through its 500 centers. An alliance forged with Amazon in 2020 proved very lucrative for UPS.

All of that convinces Bob Kalman, a founder and senior portfolio manager at Miramar Capital, that UPS will keep on keeping on, even without the catalyst of housebound consumers. This year, both UPS and archrival FedEx have seen their once-burgeoning stocks slip, around 12% each, amid some Wall Street doubts about a coming economic slowdown crimping their financial returns. That may or may not happen, but bulls like Kalman think the delivery habit has taken root and won’t shrink.

Well, for investors, what’s the difference between the two delivery goliaths? “UPS is a better value” than FedEx, Kalman contends. True, FedEx is slightly cheaper, with an 11 P/E versus UPS’s 15. Kalman, however, sees UPS’s superiority shining through in other ways. UPS has higher net income, better profit margins, and a richer dividend yield: 3.3% versus 2.3%. “UPS has the most possibilities,” he says.

VICI Properties

Does this sound like a miracle or what?

Casino owner VICI Properties (VICI) traversed the early shutdown pandemic spell, when Las Vegas and other gambling meccas were closed, with stable revenue and earnings. This is a company that owns such gaming sites as Vegas’ Caesars Palace, Atlantic City’s Borgata, and Detroit’s Hollywood Casino at Greektown. Its 43 casinos and four golf courses nationwide kept the dollars flowing to VICI.

VICI got by because it is a landlord, not an operator. It is a real estate investment trust (REIT) that owns the properties and leases them out to the likes of Caesars Entertainment and MGM Resorts. The tenants had deep enough pockets to keep writing rent checks as the plague took hold. “Not one of them missed a payment” during the lockdowns, says Mark Gambrone, head of U.S. equities at Barrow Hanley Global Investments; he’s a fan of VICI. And now that the crowds are returning to gamble and gambol, these entertainment emporiums look to be on sure footing.

The stock this year is up 6%, and Gambrone says it is trading at a 30% discount to other REITs. Also, VICI offers a stellar dividend yield of 4.6%. As if to underscore the company’s solid position, in June VICI joined the S&P 500. The REIT was formed in 2017 out of the wreckage of Caesars Entertainment, which took on more debt than it could handle and landed in bankruptcy.

VICI itself is using debt to acquire more properties, while taking pains not to get in too deep. It is in the bottom rung of investment grade, with a BBB- rating, and has a prudent 0.34 debt-to-equity ratio (meaning it has one dollar in borrowings compared with three in equity).

In many ways, VICI and the other 10 on our list exemplify stocks you should look for to muscle their way through bad times for the market and the economy: resilient and inexpensive, with promising prospects.

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