this S&P 500 It is on the verge of entering a bear market, which is defined as a 20% drop from the recent high. While bear markets can be brutal, they often offer an opportunity to buy high-quality companies at much more attractive valuations.
Considering the opportunities, we asked some of the contributors what stocks they hold. market where prices fall To-watch list. That’s why they keep an eye on the steelmaker Steel Dynamics (STLD 4.03%)waste and recycling company WM (WM 1.91%)and lithium mining company albemarle (ALB 6.22%) to finally see if a bear market buys them.
A proven playbook
Reuben Gregg Beer (Steel Dynamics): When it comes to steel mills, the industry giant Nukor It is generally considered one of the best. The co-founder and CEO of Steel Dynamics worked for Nucor before starting his own company. Not surprisingly, it uses a very similar playbook to the one used by Nucor.
Steel Dynamics, for example, uses eclectic arc mini mills, which are more flexible than older blast furnace technology. The company is vertically integrated, owning scrap operations (a core steelmaking input), steel mills and manufacturing businesses. This last grouping is a key focus, as it allows Steel Dynamics to charge higher prices for its products, thereby increasing margins. All this is pretty much what has brought Nucor so much success, including an incredible 49-year streak of annual dividend increases. It’s just a year shy dividend king Although steel is extremely important circular industry.
So why not buy Nucor? Steel Dynamics is a much smaller company and still growing rapidly. For example, the dividend series is “only” 12 years long (this is dividend payer), but the annual dividend growth rate over the past decade has been an impressive 10%. For reference, Nucor’s dividend growth rate was in the low single digits over this period. The stock is a little pricey today, given that the steel market is doing well. But as Steel Dynamics shares start to fall, investors who care about dividend growth should start looking seriously.
I would love to go to the dump for this stock
Matt DiLallo (WM): Investors have been raising shares in the collectibles and recycling company WM for several years. The company currently sells at about 35 times its earnings and about 15 times its cash flow from operations, both historically high multiples. For this reason, the dividend yield decreased to 1.5%, the lowest level in recent years. This is despite increasing payout for 19 consecutive years, including a 13% increase from last year.
While I love the company – it has produced steady growth and consistently returned cash to investors – I haven’t added to my position in years because it’s too expensive for my taste. However, it’s on my watchlist to buy if a bear market lowers it. When stocks tumbled in the early days of the pandemic, WM shares briefly traded at a much more attractive valuation with less than 24x earnings, 10x cash flow from operations and a dividend yield approaching 2.4%. I missed my chance to add it then, so I don’t mind another opportunity.
In addition to the stable cash flow generated by the collection, disposal and recycling business, another factor I love about WM is renewable natural gas (RNG) investments. WM plans to spend $825 million by 2025 to increase RNG production by 600%. These investments will capture methane produced by landfills to power its entire fleet and power 1 million homes. renewable energy. This will save money, generate increased revenue and reduce carbon emissions.
While there’s no guarantee that WM shares will fall in a bear market – stocks were 7% below their recent peaks, despite a nearly 20% drop. S&P 500 — if a bear market makes it much cheaper, I’d love to buy it.
A solid stock in a booming industry
Neha Chamaria (Albemarle): Sales of electric vehicles (EVs), growing at lightning speedand it wouldn’t surprise me if nearly every growth investor owns EV stocks. Of course, it has not been a smooth journey for many EV manufacturers, especially start-ups, but the supply side of the industry is killing it due to the boom in global demand for EVs.
The prices of batteries and basic raw materials used to make EVs and batteries are skyrocketing, which may explain why a stock like Albemarle is. above It’s down 27% in the last three months as of this writing, down 12% from the S&P 500’s peak. So whenever there’s a bear market and Albemarle stock is knocking out, if you’re optimistic about EVs, it’s a good time to consider buying.
Albemarle is one of the largest lithium mining companies in the world. Most of the batteries powering electric cars today are lithium-ion batteries, so it’s safe to say Albemarle is in the right business at the right time. The company recently posted excellent numbers for its first quarter. lithium sales soaring 97% from year to year. Albemarle has also upgraded its 2022 sales guide, which is only supported by lithium prices that are expected to rise even higher.
In fact, its end market is so strong that Albemarle has increased its guidance once, or twice in just three weeks. Albemarle also sells bromine and catalyst, but the lithium segment currently brings in almost half of its revenue. You will be surprised to know that Albemarle has increased its dividends for 28 consecutive years. Although the dividend yield is below 1% and very small, its earnings and dividend growth must be harvested. rich returns for investors buying lithium stock in the heat of the bear market.