Best Bear Market Stocks

It is no secret that the last year was exceptional for stock investors. Even a passive investment in a broad market index like S&P 500 gained 28.7% including dividends. Yet, no bull market lasts forever. Read on to learn about the best bear market stocks — where to look for the opportunities and how to decide which ones are the best.

Quick Look: Best Bear Market Stocks

Bear Market Stocks to Watch Out for This Year

Among several sectors, these stocks might help you protect in the bear market:

Walmart Inc. (NYSE: WMT)

Since 1962, Walmart has been one of the staple American brands. Originally known as Wal-Mart Stores, the company expanded from Arkansas throughout the entire U.S. and beyond. The company operates over 11,400 stores in 26 countries, focusing on the membership segment (Sam’s Club) and achieving significant e-commerce growth.

Although the company is trading at an elevated price-to-earnings (P/E) ratio (49.1), its growth should outpace the industry while its returns on capital are above-average. Meanwhile, it has a solid balance sheet, as it reduced debt over the last 5 years. Finally, the stock pays a safe 1.5% dividend, which has increased over the years.

MDU Resources Group Inc. (NYSE: MDU)

MDU Resources Group has a century-old tradition in the utility sector. Starting as an electricity distributor, it added natural gas in the 1930s. It has been trading on the New York Stock Exchange since 1948 under the ticker MDU.

Currently, it is trading at a P/E ratio of 15.6, which is well below the sector average (22.9). With a growth forecast of 10.6%, the company should outperform the industry (6.8%). Meanwhile, it maintains a solid balance sheet and pays a stable 2.8% dividend.

Medtronic (NYSE: MDT)

Medtronic is a $143 billion corporation that develops, manufactures and distributes medical devices worldwide. Initially based in Minneapolis, after the acquisition of Covidien, it moved the legal headquarters to Dublin, Ireland.

At the moment, with a P/E ratio of 30.4, the company is trading below its industry average of 48.4. Although its forecast growth is mediocre, the company has a strong balance sheet as it gradually reduced debt over the last five years. Furthermore, it pays a safe 2.37% dividend, which is well-above the industry’s average (1.3%).

Verizon Communications Inc. (NYSE: VZ)

Verizon Communications Inc. is an American telecommunication conglomerate created in 1984, as Bell Systems split into 7 companies. One of them, Bell Atlantic, eventually rebranded as Verizon and became the second-largest wireless carrier in the U.S. The stock is listed on The New York Stock Exchange and Nasdaq exchange — a rare case of dual stock listing in the home country.

Verizon stock is far from exciting, and it is often a subject of criticism due to its stagnant performance. Yet, it is one of the stocks that often pops up in dividend-related discussions. It yields 4.8%, which is below the industry standards, but it shines for safety and potential growth.

Schlumberger (NYSE: SLB)

Schlumberger Limited is the leading oilfield services company in the world. Originating in France, the company gained a foothold in the U.S. as early as 1929. Nowadays, it boasts a workforce of 86,000 and a market cap of $46.7 billion.

The stock trades with a P/E ratio of 29.2, slightly below the industry average of 31.7. However, it has a bright growth forecast at 26.1%. Like many companies in the sector, Schlumberger increased debt through 2020 while reducing the dividend. The latter has since somewhat recovered and yields 1.5%.

Overview: Bear Market Stocks

While there is no guarantee that the history will repeat, these sectors have outperformed during the market downturns in the past:

• Consumer Staples: As the most notable sector during market declines, consumer staples cover the essentials that have relatively inflexible demand. You might immediately think about the toilet paper hoarding during the decline of 2020, and that is precisely the scenario.
• Utilities: This sector consists of the companies that provide essential services like electricity, natural gas or water. Naturally, these relatively stable investments tend to do well in downturns. Furthermore, this sector has above-average dividend yields.
• Healthcare: Health is wealth. Thus, it remains a priority in the face of economic downturns. Companies that make up the healthcare sector range from drug manufacturers and medical insurers to medical equipment and healthcare facilities.
• Telecom: As the world gets more interconnected, it becomes more reliant on communication services. The global pandemic and subsequent popularization of remote work is the best example of this sector’s importance. The telecommunication sector historically outperformed during the majority of downturns, and it has high average dividend yields.
• Energy: This sector consists of companies involved in producing and selling energy, including companies that deal with fossil fuels, renewable energies and nuclear power. The energy sector is situational in downturns because it requires a bigger picture outlook. For example, in the 2020 downturn, oil futures prices went negative for the first time in history, while the price of natural gas remained in consolidation.

How to Buy Bear Market Stocks

Here are four simple steps to buy bear market stocks.

Step 1: Pick a Brokerage

The easiest and most convenient way to buy a stock is through a brokerage — a regulated intermediary between you (the investor) and the stock market. Nowadays, you can buy and sell stocks through web platforms and phone apps.

Check out our broker comparison table below if you are a first-time investor or are looking for a new brokerage.

Step 2: Decide How Many Shares You Want

The number of shares to buy depends on share price, portfolio size and risk management strategy. Prices per single share can vary, so if you’re planning on investing fixed amounts

periodically, using a broker that allows fractional share buying might be a good idea.

Step 3: Choose Your Order Type

There is more than one way to instruct your broker on buying shares. Before investing, you should understand the following basics: 

• Market order: The simplest way to trade on the market. This order instructs your broker to buy or sell shares immediately, regardless of price. It is the fastest way, but you might get a slightly worse entry price.
• Limit order: This order goes through only at a certain level or better. For example, if the stock trades at $51 and you put in a limit order at $50.50, it will execute only if the price falls and reaches that level.
• Bid: This amount is the greatest price a buyer is willing to pay at the moment.
• Ask: This amount is the smallest price at which the seller is selling at the moment. 
• Spread: This term represents the amount between the bid and the ask. For example, if the bid for the stock is $50.30 and the ask is $50.33, then the spread is $0.03. A narrow spread is a sign of good liquidity in the market.

Step 4: Execute Your Trade

After you have selected and executed the trade, the broker will process the order for you. Check your broker’s statements, which will show that you officially own the shares when the order has been filled.

Features to Look for in Bear Market Stock

Consider the following factors when discussing the picks for the next market downturn:

• Historical resilience: Sectors behave differently in certain market conditions. Consumer staples and utilities have done the best in the last several downturns, with healthcare and telecom following just behind.
• Solid balance sheet: Companies that operate in the same sector might be vastly different. Having a solid balance sheet is one of the best ways that a company can prepare for a downturn. You should look at the total debt and its relation to the operating cash flow. The debt-to-equity (D/E) ratio can be helpful, but remember that acceptable leverage might vary by sector.
• Quality earnings: Numbers might not always be what they seem. Between accounting tricks and one-time events, numbers might be skewed not to represent the actual situation. Generally accepted accounting principles (GAAP) help clarify the situation, so any divergences between them and non-GAAP earnings per share might be a potential red flag.
• Safe dividend: A dividend is a distribution of profits to its shareholders. Typically, mature companies pay a dividend as the growth opportunities tend to shrink eventually. A good dividend mixes payment consistency, growth opportunity and sustainability.

Preparation in Moderation

Although you might feel pressure to make changes in anticipation of a bear market, remember the Wall Street proverb that more money is lost in preparation for recessions than in them. Even while history never precisely repeats, it often rhymes well enough to help investors draft plans for market downturns.

While you have to be aware that no bull market lasts forever, trying to time its top is as futile as predicting the bottom of the bear market.

Frequently Asked Questions