Dow Jones Bear Market: 3 no-brainer stocks for market growth |  The Motley Fool

Dow Jones Bear Market: 3 no-brainer stocks for market growth | The Motley Fool

After falling into bearish territory (marking a 20% drop) at the end of September, the Dow Jones Industrial Average (^ DJI -0.90%) recovered some and is now down about 8% for the year. Some of its recovery came from top stocks, including caterpillar (CAT -1.57%)up nearly 10% in 2023.

However, there are still some high-quality Dow Jones stocks that have fallen more than 20%, and they are the ones that have prevented the Dow Jones from fully recovering. This includes Home deposit (HD -1.11%) and Walgreens Boot Alliance (WBA -1.15%)both down more than 21% at recent prices.

But history has shown us that often the best time to buy big companies like this is when the market has turned its back on them. It might seem like a scary time to buy stocks, but the market is going to rally and return to growth, and these two – along with the winner from Caterpillar – will likely prove obvious buys right now.

1. The winner who should keep winning

With stocks up nearly 10% in a difficult year for most stocks, Caterpillar has shown resilience in a challenging environment. As inflation weighed on its margins and supply chain pressures affected its ability to meet demand, the heavy machinery maker continued to prove itself a cash cow despite all the challenges.

And while it will face future pressures as the demand cycle for heavy machinery eases, Cat has also made its service business a higher priority and a more stable source of cash flow. The cat of today – and the cat of the future – will likely be less affected by downturns in demand.

From a valuation perspective, Cat might look a bit pricey today, trading for 17x earnings and 32x cash flow. But that doesn’t paint a big picture; Cat’s cash flow is near the lower limit of what management expects it to generate through the cycle. Based on this, Cat’s stock price looks fairer and maybe even a little cheap for long-term investors. With a 2% yield and a nearly decade-long streak of dividend growth, investors have ample incentive to buy and hold Caterpillar.

2. A turnaround made Walgreens a high-value stock

The healthcare industry is changing and Walgreens is changing with it. For decades his name has been associated with his chain of pharmacies, with thousands of neighborhood locations. Like most pharmacies, Walgreens makes a lot of money by relying on foot traffic from customers who also use its stores to purchase other products. The COVID-19 pandemic hit that foot traffic hard, especially early on, but Walgreens was already pivoting to bring more health services to its stores. And so far, it looks like those efforts are paying off.

Walgreens has also taken steps to significantly reduce operating expenses and increase digital sales, a way to take greater advantage of its convenient locations so close to millions of potential customers.

Yet the shares of this Dividend Aristocrat continue to trade as if the company faces a rough road. With shares trading at around nine times forward earnings estimates and a dividend yield close to 4.7% (and nearly half a century of annual dividend increases), Walgreens is a deeply discounted Dow stock. worth buying now.

3. Beyond the housing downturn, future earnings

The Home Depot may seem like a retailer ready for big trouble. The housing market has entered a steep decline, and the Federal Reserve’s efforts to stamp out runaway inflation could plunge the United States into a recession. These things combined seem to spell the end of Home Depot prospects. And frankly, things could be difficult in the short term. That’s clearly what the market thinks, with its shares down almost 25% (although they have rallied somewhat in recent months).

But the secret to successful stock investing is knowing when market fears have given you the opportunity to profit. Buying Home Depot shares while they are still down double digits is likely to prove one such opportunity.

That’s because Home Depot’s core business is likely to prove very resilient, and even if a sharp downturn hits its results hard, it’s a business worth owning when things get tough. will recover.

Some data points: The average American home is 37 years old and we are significantly undersupplied based on new construction and new household formation over the past decade. That means homeowners will have to keep spending money improving and updating their older homes, and on the other side of this housing downturn, the structural housing shortage will persist. Those are two great reasons to own the leading home improvement retailer in the United States.

Trading at around 19 times trailing and future earnings, and a dividend yield of 2.4%, Home Depot may not be a bargain, but it is at the cheaper end of its multiples. historical. Patient investors will be glad they bought Home Depot when the market returns to growth.

Jason Hall holds positions within the Walgreens Boots Alliance. The Motley Fool fills positions and recommends Home Depot. The Motley Fool has a disclosure policy.

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