FICS Editors' Note

This story has been republished from an earlier date with updated information.

The 10 best stocks for a bear market

The ideal bear-market stock pick should have a defensive business, a long history of dividend growth and relatively low volatility. Here are 10 stocks that fit that bill.

  • By Dan Burrows,
  • Kiplinger
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

Bear markets are an inevitable if particularly unpleasant part of the market cycle. But investors who hold the best stocks to buy for bear markets can mitigate at least some of the damage.

The S&P 500 (.SPX) flirted with a ​​​​​​bear market – or a 20% decline from its peak – for several months before finally succumbing on June 13. The Nasdaq Composite (.IXIC), for its part, fell into a bear market a while ago.

Either way, 2022 has been a dismal year for equities with no clear end in sight. Bottoms are hard to call in real time anyway, and, besides, stocks can trade sideways for as long as they want to.

And so if this is how things are going to continue, investors might want to bulk up on stocks that exhibit resiliency during protracted downturns.

The best bear market stocks tend to be found in defensive sectors, such as consumer staples, utilities, healthcare and even some real estate equities. Furthermore, companies with long histories of dividend growth can offer ballast when seemingly everything is selling off. And, of course, low-volatility stocks with relatively low correlations to the broader market often hold up better in down markets.

To find the best stocks to buy for bear markets, we screened the S&P 500 for stocks with the highest conviction consensus Buy recommendations from Wall Street industry analysts. We further limited ourselves to low-volatility stocks that reside in defensive sectors and offer reliable and rising dividends. Lastly, we eliminated any name that was underperforming the broader market during the current downturn.

That process left us the following 10 picks as our top candidates for the best stocks to buy for a bear market.

Share prices, price targets, analysts' recommendations and other market data are as of June 10, courtesy of S&P Global Market Intelligence and YCharts, unless otherwise noted. Stocks are listed by conviction of analysts' Buy calls, from weakest to strongest.

10. Berkshire Hathaway

  • Market value: $643.6 billion
  • Dividend yield: N/A
  • Analysts' consensus recommendation: 2.25 (Buy)

Warren Buffett's Berkshire Hathaway (BRK/B) gets a consensus recommendation of Buy with only modest conviction, but then a mere four analysts cover the stock.

One pro rates it at Strong Buy, one says Buy and two have it at Hold, per S&P Global Market Intelligence, which means the latter two analysts believe Buffett's conglomerate will only match the performance of the broader market over the next 12 months or so.

That's a reasonable assumption if stocks do indeed avoid falling into bear-market territory. BRK.B, with its relatively low correlation to the S&P 500, tends to lag in up markets.

By the same token, however, few names generate outperformance as reliably as Berkshire does when stocks are broadly struggling. That's by design. And Buffett's wisdom of forgoing some upside in bull markets to outperform in bears has proven to be an incomparably successful strategy when measured over decades.

Indeed, Berkshire's compound annual growth (CAGR) since 1965 stands at 20.1%, according to Argus Research. That's more than twice the S&P 500's CAGR of 10.5%.

As one would expect, BRK.B is beating the broader market by a wide margin in 2022, too. The stock was off 2.4% for the year-to-date through June 10, vs. a decline of 18.2% for the S&P 500.

If we do find ourselves mired in a prolonged market slump, BRK.B will probably not go along for the ride. That makes it one of the best bear market stocks to buy.

9. CVS Health

  • Market value: $122.2 billion
  • Dividend yield: 2.4%
  • Analysts' consensus recommendation: 2.00 (Buy)

The healthcare sector is a traditional safe haven when markets turn south. Where CVS Health (CVS) stands out is that few sector picks possess its unique defensive profile.

CVS is probably best known as a pharmacy chain, but it's also a pharmacy benefits manager and health insurance company. Analysts praise the company's multi-faceted business model for both its defensive characteristics and long-term growth prospects.

"We are bullish on CVS tied to its unique set of assets, robust clinical capabilities and expanding presence in the attractive Medicare business," writes Truist analyst David MacDonald, who rates the stock at Buy. "We view CVS' integrated pharmacy/medical benefits as well positioned. Significant scale across its business lines, a strong balance sheet and robust cash flow generation provide dry powder for ongoing capital deployment activities over time."

MacDonald has plenty of company in the bull camp. Nine analysts rate CVS at Strong Buy, eight call it a Buy and nine have it at Hold. Meanwhile, their average target price of $117.77 gives the stock implied upside of about 26% in the next 12 months or so.

Investors can also take comfort in the stock's low volatility. Shares have a five-year beta of 0.77. Beta, a volatility metric that serves as a sort of proxy for risk, measures how a stock has traded relative to the S&P 500. Low-beta stocks tend to lag in up markets, but hold up better in down ones.

That's certainly been the case with CVS stock this year. Shares were off 9.7% for the year-to-date through June 10, but that beat the S&P 500 by 9 percentage points. Such resilience makes the case for CVS as a top bear market stock to buy.

8. AbbVie

  • Market value: $253.1 billion
  • Dividend yield: 3.9%
  • Analysts' consensus recommendation: 2.00 (Buy)

Pharmaceutical giant AbbVie's (ABBV) defensive characteristics stem from it being part of the healthcare sector, as well as a low-volatility Dividend Aristocrat.

But the Street is outright bullish on the name for other reasons as well.

High on analysts' list are ABBV's growth prospects and its pipeline. AbbVie is best known for blockbuster drugs such as Humira and Imbruvica, but the Street is also optimistic about the potential for its cancer-fighting and immunology drugs.

"After the recent weakness in ABBV, we revisited the model, and we came away even more confident regarding the growth prospects and pipeline," writes Wells Fargo Securities analyst Mohit Bansal, who rates AbbVie as his Top Pick. "We think the consensus forecast significantly underestimates post-2023 growth. There are multiple pipeline catalysts in the 2022 to 2023 timeframe which are not in consensus models."

At Truist Securities, analyst Robyn Karnauskas (Buy) largely agrees with that view. Although ABBV is suffering with the expected erosion of sales of Humira, newer drugs such as Rinvoq and Skyrizi are rapidly gaining momentum, the analyst says.

The bottom line is that bulls outweigh bears on this name by a comfortable margin. Eleven analysts rate ABBV at Strong Buy, four say Buy, seven call it a Hold and two say Sell.

AbbVie also stands out as a top bear market stock to buy because of a half-century of annual dividend increases. Same goes for ABBV's low beta. The latter indicates relatively low correlation to the S&P 500, and is evidenced by ABBV stock gaining 5.8% for the year-to-date through June 10. That beat the broader market by nearly 24 percentage points.

7. Medtronic

  • Market value: $123.4 billion
  • Dividend yield: 2.9%
  • Analysts' consensus recommendation: 1.92 (Buy)

Medtronic (MDT) is another low-volatility healthcare stock with a long history of dividend growth that analysts say remains poised for even more market-beating returns.

Shares in one of the world's largest manufacturers of medical devices lost 10.4% for the year-to-date through June 10, a period in which the S&P 500 shed more than 18%. More importantly, with an average price target of $114.45, the Street gives MDT implied upside of 23% in the next 12 months or so.

That's why analysts' consensus recommendation stands at Buy, with fairly high conviction. Of the 25 analysts surveyed by S&P Global Market Intelligence covering MDT, 12 rate it at Strong Buy, three say Buy and 10 call it a Hold.

Part of MDT's appeal stems from its compelling price. Shares change hands at 16.7 times analysts' 2022 earnings per share (EPS) estimate. And yet MDT is forecast to generate average annual EPS growth of more than 10% over the next three to five years.

"We see this as an attractive valuation," notes Argus Research analyst David Toung (Buy), adding the company "has solid post-pandemic growth opportunities from both current and soon-to-be-launched products."

Indeed, the Street singles out MDT's strong portfolio of existing products, as well as promising new ones under development.

"We believe Medtronic's deep product pipeline should drive improving revenue growth and enable margin improvement resulting in high single-digit EPS growth and multiple expansion," writes Needham analyst Mike Matson (Buy).

The best stocks to buy for bear markets often return cash to shareholders, too. And MDT's history in that regard is as solid as they come. This Dividend Aristocrat has increased its payout annually for 44 years and counting.

6. Coca-Cola

  • Market value: $266.2 billion
  • Dividend yield: 2.9%
  • Analysts' consensus recommendation: 1.88 (Buy)

Few names in the defensive consumer staples sector can match Coca-Cola (KO) when it comes to blue-chip pedigree, history of dividend growth and bullishness on the part of Wall Street analysts.

Coca-Cola's blue-chip bona fides are confirmed by its membership in the Dow Jones Industrial Average (.DJI). But the company also happens to be an S&P 500 Dividend Aristocrat, boasting a dividend growth streak of 60 years and counting.

Oh, and Coca-Cola also enjoys the imprimatur of no less an investing luminary than Warren Buffett, who has been a shareholder since 1988. At 6.8% of the Berkshire Hathaway equity portfolio, KO is Buffett's fourth-largest holding.

Coca-Cola's more immediate prospects are bright too, analysts say. It's an unusually low-beta stock, for one thing, and that has been very helpful during this dismal 2022. Shares in KO have gained 3.7% for the year-to-date through June 10, beating the broader market by more than 21 percentage points.

True, KO was hit hard by pandemic lockdowns, which shuttered restaurants, bars, cinemas and other live venues. But those sales are now bounding back. Analysts likewise praise Coca-Cola's ability to offset input cost inflation with pricing power.

"We think KO's strong fourth-quarter results reflect its brand power and ability to thrive in an inflationary environment, as top line improvement was entirely driven by price and mix," writes CFRA Research analyst Garrett Nelson (Buy).

Most of the Street concurs with that assessment. Twelve analysts rate KO at Strong Buy, six say Buy, seven have it at Hold and one calls it a Sell. With a consensus recommendation of Buy, KO looks to be one of the best bear market stocks to buy.

5. General Dynamics

  • Market value: $62.4 billion
  • Dividend yield: 2.2%
  • Analysts' consensus recommendation: 1.81 (Buy)

Shares in defense contractor General Dynamics (GD) benefit in down markets both from their relatively low volatility and dependable dividends. That alone makes GD worth considering as one of the better bear market stocks to buy.

What puts General Dynamics over the top, however, is its robust long-term growth forecast and potential for high share-price appreciation, analysts say.

GD's defensive characteristics have certainly been well documented so far in 2022. Shares gained 7.8% for the year-to-date through June 10, a period in which the S&P 500 fell more than 18%.

And the Street sees more outperformance ahead. Of the 16 analysts issuing opinions on the stock tracked by S&P Global Market Intelligence, nine call it a Strong Buy, two say Buy, four have it at Hold and one calls it a Sell.

Analysts forecast General Dynamics to generate average annual EPS growth of 11.6% over the next three to five years. And, notably, their average target price of $268.87 gives GD implied upside of about 20% in the next 12 months or so.

"Over the long term, GD management is focused on driving growth through modest sales increases, margin improvement, and share buybacks," writes Argus Research analyst John Eade (Buy). "The company also aggressively returns cash to shareholders through increased dividends (most recently with a hike of 6%)."

If we do find ourselves slogging through a bear market – or just a sideways market – 20% price upside would be outstanding. And as a Dividend Aristocrat with 31 consecutive years of payout increases to its name, shareholders can at the very least count on GD for equity income.

4. Iron Mountain

  • Market value: $14.8 billion
  • Dividend yield: 4.9%
  • Analysts' consensus recommendation: 1.71 (Buy)

Iron Mountain (IRM) is a real estate investment trust (REIT) with a twist. While the company is growing out a more modern datacenter arm, its legacy business is to store, protect and manage documents. In some cases that means it merely shreds them. The good news is that when corporate customers do indeed store paper documents, they tend to do so for very long periods of time.

That sort of predictability not only helps Iron Mountain maintain a generous dividend, but it allows IRM stock to trade with relatively low volatility. No wonder analysts particularly like Iron Mountain as one of the best bear market stocks to buy.

"We view IRM as a defensive stock in the current environment, with significant valuation discounts to more traditional REITs (storage and data centers), an improving organic revenue growth story, and the very strong likelihood that the dividend will start to be raised at a 5% to 7% annual pace starting in 2023," writes Stifel analyst Shlomo Rosenbaum (Buy).

Only seven analysts cover the stock, per S&P Global Market Intelligence, but their consensus recommendation comes to Buy with fairly high conviction. Four pros rate IRM at Strong Buy, two say Buy and one has it at Sell. Meanwhile, their average target price of $61.67 gives IRM implied upside of more than 20% in the next year or so.

Such returns would be extraordinary in a bear market, but then, IRM has been holding up its end of the bargain on defense so far. Shares lost 2.5% for the year-to-date through June 10 to beat the S&P 500 by about 16 percentage points.

3. UnitedHealth Group

  • Market value: $454.7 billion
  • Dividend yield: 1.4%
  • Analysts' consensus recommendation: 1.68 (Buy)

Blue-chip stocks in defensive sectors such as healthcare tend to hold up better in bear markets, which is why it's no surprise to see UnitedHealth Group (UNH) make the cut.

This Dow Jones stock is the market's largest health insurer by both market value and revenue – and by wide margins at that. But UNH's sheer size alone is hardly a reason to hold it through a market downturn.

Shareholders can also take comfort in 13 consecutive years of dividend increases, a stock that's historically been much less volatile than the broader market, and an outsized profit-growth forecast.

Analysts praise UNH on a number of fronts, with contributions from the Optum pharmacy benefits manager business being a regular highlight. A steep decline in hospitalizations due to COVID-19 is also a welcome relief.

"We maintain our Strong Buy rating on UNH as we believe shares continue to offer an attractive risk-reward tradeoff, and expect management to execute on its mid-teens EPS growth target," writes Raymond James analyst John Ransom.

The Street, which gives the stock a consensus recommendation of Buy with high conviction, expects the company to generate annual EPS growth of 15.5% over the next three to five years.

Lastly, this low-vol stock is performing as expected in 2022. It was off 3.5% for the year-to-date through June 10. That beat the S&P 500 by nearly 15 percentage points.

2. Mondelez International

  • Market value: $84.14 billion
  • Dividend yield: 2.3%
  • Analysts' consensus recommendation: 1.67 (Buy)

Consumer staples giant Mondelez International (MDLZ) is one of the best stocks for a bear market for many of the same reasons that it's one of the best stocks to stave off sizzling inflation.

The company's vast portfolio of snacks and foods include Oreo cookies, Milka chocolates and Philadelphia cream cheese, to name a few. Sales of such consumer favorites tend to hold up well amid rising prices thanks to fickle palates and brand loyalty.

Where MDLZ stands out among analysts, however, is in its ability to handle higher input costs thanks to a longstanding hedging program. The company also has been successful in passing higher costs on to consumers.

"We hold a strong growth outlook for Mondelez as its sales growth continues to outperform our expectations driven by strong market share performances and strong category growth rates," writes Stifel analyst Christopher Growe (Buy).

Nine consecutive years of dividend increases and a stock that trades with much lower volatility than the S&P 500 should also serve investors well in a tough market. Indeed, MDLZ was off 8.3% for the year-to-date through June 10, vs. a decline of more than 18% for the broader market.

Stifel is in the majority on the Street, which gives MDLZ a consensus recommendation of Buy, with high conviction. Twelve analysts rate it at Strong Buy, eight say Buy and four have it a Hold.

Pricing power, market share gains and low volatility all help make the case for MDLZ as one of the best bear market stocks to buy.

1. T-Mobile US

  • Market value: $163.6 billion
  • Dividend yield: N/A
  • Analysts' consensus recommendation: 1.50 (Strong Buy)

Telecommunications stocks have always been known for their defensive characteristics. Where T-Mobile US (TMUS) stands out is that shares in the wireless carrier have tremendous price upside too, analysts say.

You can chalk TMUS's bright future up to the company's $30 billion merger with Sprint. The deal closed two years ago, but the benefits have been escalating ever since.

That's because the "trove" of mid-band spectrum Sprint brought to TMUS allowed the telco to rapidly build out its next-generation 5G mobile wireless network, notes Argus Research analyst Joseph Bonner (Buy). The high-speed network, in turn, gave the company a competitive advantage over Verizon (VZ) and AT&T (T).

"The success of the company's service plan innovations has been evident in its robust subscriber acquisition metrics," Bonner writes. "T-Mobile remains the best positioned of the national carriers to take market share."

T-Mobile's clear advantages over peers accounts for the Street's consensus recommendation on the stock, which stands at a rare Strong Buy. It also factors into analysts' average price target, which, at $167.60, gives TMUS implied upside of nearly 30% in the next year or so.

With a five-year beta of 0.51, TMUS can kind of be thought of as being half as volatile as the S&P 500. That low-vol character has paid off handsomely so far this year. TMUS was up 12.5% for the year-to-date through June 10, a period in which the broader market fell more than 18%.

If the recent past is prologue, TMUS will prove itself as one of the best bear market stocks to buy.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Print

For more news you can use to help guide your financial life, visit our Insights page.


© 2022 The Kiplinger Washington Editors, Inc.
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.