Since the start of 2022, the S&P 500 Index has observed a decline of 15.5%. The index also remained in the bear market territory from mid-June to mid-July and from the third week of September to early November. As investors return after the Thanksgiving holiday, they are preparing themselves for the final interest rate hike of the year in December. The majority consensus is that the benchmark interest rate will be increased by 50 basis points (bps) to a range of 4.25% to 4.5% when the members of the Federal Reserve meet on December 14. The current benchmark interest rates are already at their highest level since 2008. The Fed has increased the benchmark interest rates by 75 bps on the past four consecutive occasions. The raging inflation and increasing interest rates have dampened the sentiments of investors across Wall Street. Experts are anticipating the Federal Reserve to maintain a hawkish stance till the inflation rate falls below the 4% level. This will still be two percentage points (ppts) higher than the Federal Reserve’s target of 2%. Inflation for October 2022 was recorded at 7.7%, which reflected a decline for the fourth consecutive month and is at its lowest level since January 2022. However, inflation is currently hovering at a four-decade high.
Goldman Sachs anticipates that the bear market that has hit stocks this year could continue in 2023 as well. The New York-based diversified financial services firm believes that the recent recovery in stocks is just a knee-jerk reaction to the heavy losses that investors have faced this year. There are still three factors that need to materialize for the stocks to find a bottom. The first factor is that the valuations need to be more depressed to be in line with recessionary markets. Secondly, the business cycle should reach a true bottom in terms of economic deterioration before actual recovery occurs. Finally, the benchmark interest rates need to reach a peak. This has not been the case till now, as experts believe that the benchmark interest rate will reach a peak of 5.5% in 2023 before cuts start to take place in 2024. In such circumstances, investors are on the lookout for the best bear market stocks to shield their savings. Companies like Berkshire Hathaway Inc. (NYSE:BRK-B), Microsoft Corporation (NASDAQ:MSFT), and Amazon.com, Inc. (NASDAQ:AMZN) are attracting investors’ attention amidst bearish momentum in the markets.
To shortlist the 13 best bear market stocks, we have looked at the business fundamentals and operational efficiency of these companies. Many of these stocks offer attractive annual dividend yields and have defensive properties that can help them hold ground during a bear market. We also picked some solid tech stocks that currently offer an attractive entry point to investors. We used Insider Monkey’s database of 920 hedge funds to rank these stocks according to the level of hedge fund ownership as of Q3 2022.
Enterprise Products Partners L.P. (NYSE:EPD) is a Houston, Texas-based midstream company involved in transporting crude oil and natural gas.
The company is a master limited partnership (MLP) which bounds it to distribute 90% of its taxable income to shareholders as dividends. As a result, Enterprise Products Partners L.P. (NYSE:EPD) stock offers an enticing one-year forward dividend yield of 7.68% as of November 30. The company reported record transportation of crude oil and natural gas during Q3 2022. Enterprise Products Partners L.P. (NYSE:EPD) anticipates the positive momentum to continue next year also as it’s expecting an increase in the production of crude oil and natural gas from the Permian basin.
“Enterprise Products Partners L.P. (NYSE:EPD) is the largest position in the Fund. Enterprise provides processing and transportation services to producers and consumers of natural gas, natural gas liquids, and oil. These hydrocarbons are critical for modern life and have few, if any, ready substitutes. Commodity prices do not greatly affect the company’s toll road fees. Enterprise is priced at less than nine times distributable cash flows and pays a 7.5% cash distribution.”
NIO Inc. (NYSE:NIO) is a Shanghai, China-based manufacturer of electric Sedan and Sports Utility Vehicles (SUVs). The company manufactures various models to cater to diverse markets.
In a research note issued to investors on November 21, Edison Yu at Deutsche Bank highlighted that the worse is finally over for NIO Inc. (NYSE:NIO) as the Chinese government has started to relax its zero COVID policy. Analysts are bullish on NIO Inc. (NYSE:NIO) as they expect the company to overcome production-related challenges and deliver around 20,000 units in December. Yu increased the price target on NIO Inc. (NYSE:NIO) from $20 to $21 and maintained a Buy rating on the stock.
Here’s what Horos Asset Management said about NIO Inc. (NYSE:NIO) in its Q1 2022 investor letter:
“At the beginning of April the CSRC (China Securities Regulatory Commission) announced possible changes in its regulation that would allow this inspection by foreign auditors, provided that the companies previously communicate to this body the state secrets that would be exposed, as well as the sensitive information that they might have to hand over, and the subsequent audit is carried out in a framework of collaboration with the CSRC. In short, a move in the direction desired by the SEC, although still far from the optimal result, that is, unrestricted access to information. While these negotiations between the two regulatory bodies are progressing, Chinese companies have to decide how best to preserve their interests. Other entities, such as the electric vehicle manufacturer Nio, have just started trading on this stock market.”
Mondelez International, Inc. (NASDAQ:MDLZ) is a Chicago, Illinois-based beverage, confectionary, food, and snacks company with a presence in over 160 countries.
During Q3 2022, Ray Dalio’s Bridgewater Associates increased its stake in Mondelez International, Inc. (NASDAQ:MDLZ), reflecting optimism on the company’s future outlook. Mondelez International, Inc. (NASDAQ:MDLZ) reported strong Q3 2022 results in early November. Experts have highlighted Mondelez International, Inc. (NASDAQ:MDLZ) as one of the stocks with a strong upside potential due to its diverse range of products and presence across a wide variety of retail channels. Furthermore, the company is expected to benefit from an improvement in overall consumer sentiment as inflation has started to ease. Mondelez International, Inc.’s (NASDAQ:MDLZ) forward dividend yield stands at 2.33% as of November 30.
Here’s what Coho Partners said about Mondelez International, Inc. (NASDAQ:MDLZ) in its Q3 2022 investor letter:
“Analysts’ bottom-up estimates for both 2022 and 2023 for the S&P 500 Index are beginning to decline. Coho is not immune to the earnings pressure exerted by a strong USD, although the portfolio on the whole has modestly less foreign revenue exposure relative to the S&P 500 Index. The two most impacted Coho stocks includes Mondelez International (NASDAQ:MDLZ), which gets about 75% of its revenues outside the U.S.”
The Coca-Cola Company (NYSE:KO) is an Atlanta, Georgia-based beverage company known for its namesake brand and other leading beverages around the world.
The Coca-Cola Company (NYSE:KO) posted strong Q3 2022 results, outperforming consensus estimates. The momentum was driven by strong growth in organic sales that countered the adverse impact of currency headwinds. Following the results, Peter Grom at UBS increased the price target on The Coca-Cola Company (NYSE:KO) from $63 to $68 and maintained a Buy rating on October 26. The analyst added that the company’s risk and reward profile looks favorable, making it one of the best bear market stocks to invest in. The Coca-Cola Company (NYSE:KO) offers an annual forward dividend yield of 2.82% as of November 30. The company is also the fourth biggest holding in the portfolio of Berkshire Hathaway Inc.
“The Coca-Cola Company (NYSE:KO), the global beverage business, was a leading contributor for the period. Coca-Cola continues to benefit from the refranchising of its bottling operations and realignment of incentives, catalysts we previously identified. These initiatives are demonstrating their strength in an inflationary and supply-chain-challenged environment. Additionally, the company has focused on evolving its customer engagement practices by leveraging digital and social medias for targeted campaigns, such as the design and launch of Coke Byte in the metaverse. Lastly, Coca-Cola has furthered its transformation into a total beverage company, as it debuted its new Jack Daniel’s Tennessee Whiskey and Coca-Cola ready-to-drink premixed cocktail. Although uncertainties surrounding cost pressures, lockdowns and geopolitical conflicts remain, we believe Coca-Cola is uniquely positioned to successfully continue its transition toward a total beverage business.”
CVS Health Corporation (NYSE:CVS) is a Rhode Island-based healthcare company that offers a retail pharmacy network, health insurance services, and a pharmacy benefit manager (PBM). The company is at the ninth position on our list of the best bear market stocks to buy now.
On November 23, Erin Wright at Morgan Stanley assigned CVS Health Corporation (NYSE:CVS) stock a target price of $119 along with an Overweight rating. The analyst has an overall bullish outlook on the company’s long-term earnings prospects. CVS Health Corporation (NYSE:CVS) offers an annual payout of $2.20, translating into a forward dividend yield of 2.18% as of November 30. CVS Health Corporation (NYSE:CVS) has also revealed that it is looking for acquisition opportunities that could advance the company’s broader strategy and increase its presence in key areas.
Vltava Fund shared its stance on CVS Health Corporation (NYSE:CVS) in its Q3 2022 investor letter. Here’s what the firm said:
“CVS is a leader in the provision of healthcare services in the USA. It has three main businesses: an enormous network of pharmacies, a health insurance company, and “prescription benefit management”, which is a kind of intermediary between insurance companies and pharmacies. This is the result of large acquisitions over the past 15 years – most notably of Caremark (2007) and Aetna (2018). The markets had deemed its acquisition of health insurer Aetna too expensive (and we agree), so CVS stock then fell into disfavour for a few years.
We took advantage of this in the summer of 2020 and brought the stock into our portfolio at a time when its price was pressed down still further by the coronavirus pandemic. CVS is a giant. It has revenues of USD 300 billion, making it one of the largest companies in the world. It is a relatively stable and highly profitable company with strong free cash flow. Over the past few years, CVS has focused primarily on reducing debt.
This is already much lower than it had been after the Aetna acquisition, and most of the cash is now likely to go to shareholders through share buybacks or be used for smaller acquisitions to grow the company further. CVS trades at about 11 times annual earnings, which is a very appealing valuation given the expected future growth in profitability and overall modest cyclicality in its business.”
Walmart Inc. (NYSE:WMT) is a Bentonville, Arkansas-based company that is considered the biggest retailer in the world through its hypermarkets, supercenters, and supermarkets.
In an update issued to investors on November 16, Robert Ohmes at Bank of America highlighted that Walmart Inc. (NYSE:WMT) is gaining market share in the middle of challenging and uncertain economic circumstances. The analyst anticipates the company to gain more market share in the grocery segment as it offers strong value through its everyday low prices (EDLP) strategy. The analyst increased the price target on Walmart Inc. (NYSE:WMT) from $155 to $165 and maintained a Buy rating on the stock following the strong Q3 2022 earnings results.
Here’s what Leaven Partners said about Walmart Inc. (NYSE:WMT) in its Q3 2022 investor letter:
“In our last quarterly letter, I briefly mentioned that the consensus estimates for corporate profits appeared to be a bit too sanguine. I referenced a Reuters article that reported, as of June 17, Wall Street expected S&P 500 earnings to grow by 9.6% in 2022, which was up from 8.8% in April and from 8.4% in January. That tune began to change at the end of July and accelerated in August and September, as major players, such as Walmart (NYSE:WMT), has recently issued profit warnings and/or have withdrawn guidance. In response, Wall Street has altered its outlook: lowering third-quarter profit growth to 4.6% from 7.2% in early August and slashing full-year profit growth to 4.5%.”
AbbVie Inc. (NYSE:ABBV) is a Chicago, Illinois-based pharmaceutical company that has invested over $50 billion in research and development since its spin-off from Abbott Laboratories in 2013.
Trung Huynh at Credit Suisse initiated coverage on AbbVie Inc. (NYSE:ABBV) on November 17 with an Outperform rating and a target price of $170. The analyst termed the company as one of the two best ideas in the US large-cap pharmaceutical industry. Huynh thinks that AbbVie Inc. (NYSE:ABBV) has a strong drug pipeline, making it one of the best bear market stocks to invest in. Furthermore, the analyst thinks the guidance of 35% to 55% erosion in sales for Humira in 2023 following the expected launch of nine biosimilars is “too conservative.” AbbVie Inc. (NYSE:ABBV) offers an annual forward dividend yield of 3.74% as of November 30.
Baron Funds shared its bullish outlook on AbbVie Inc. (NYSE:ABBV) in its Q3 2022 investor letter. Here’s what the firm said:
“AbbVie Inc. (NYSE:ABBV) is a drug developer best known for Humira, an immunosuppressant that is the best selling drug of all time. Given outsized key product risk (patent cliff and generic launches beginning in 2023), AbbVie has broadened its pipeline, highlighted by its Allergan acquisition. Shares fell on results that missed consensus and indications that legacy franchises were outperforming newer product launches, calling into question AbbVie’s long-term strategy. With promising assets in the pipeline and its robust cash flow profile, we believe AbbVie will grow well into the future.”
Johnson & Johnson (NYSE:JNJ) is a New Jersey-based diversified healthcare company that is involved in consumer health, medical technology, and pharmaceutical products.
The company is working on spinning off its consumer health segment as a separate publicly listed entity to focus on its core medical technology and pharmaceutical businesses. Experts anticipate the spin-off will improve the valuation of Johnson & Johnson (NYSE:JNJ). Furthermore, the company intends to reach revenue of $60 billion from its pharmaceutical business by 2025. The segment contributed a total revenue of $52.08 billion in 2021. Johnson & Johnson (NYSE:JNJ) has provided the impetus to the medical technology division through the acquisition of Abiomed, Inc. (NASDAQ:ABMD) for $16.6 billion. Johnson & Johnson (NYSE:JNJ) is one of the best market stocks as the company has increased its dividends for the past 50 years, making it a Dividend King. The stock offers an annual forward dividend yield of 2.55% as of November 30.
Here’s what Mayar Capital said about Johnson & Johnson (NYSE:JNJ) in its Q2 2022 investor letter:
“J&J is currently our largest position and a long-standing holding. The majority of the group’s sales comes from its collection of pharmaceutical franchises, but a large majority (~45%) comes from its collection of medical device businesses and its consumer brands.
Here’s how JNJ make and spend a dollar of revenues: As of 2021, about 55 cents of that dollar comes from its pharmaceutical sales – sales of drugs to pharmacies and distributors – while 30 cents come from the sale of medical devices, such as surgery equipment and orthopaedics. The rest of that dollar in sales comes from sales of JNJ’s consumer brands such as Listerine mouthwash, Nicorette nicotine tablets and Neutrogena cosmetics.
To make that dollar, however, JNJ typically spends about 25 cents to make the products themselves and another 27 cents on marketing and general administrative functions. This leaves JNJ with about 48 cents on the dollar in profit…” (Click here to see the full text)
In addition to Johnson & Johnson (NYSE:JNJ), companies like Berkshire Hathaway Inc. (NYSE:BRK-B), Microsoft Corporation (NASDAQ:MSFT), and Amazon.com, Inc. (NASDAQ:AMZN) are also some of the best bear market stocks to buy now.