The Standard & Poor’s 500 On the cusp of entering a bear market, defined as a 20% decline from the recent peak. While bear markets can be harsh, they often provide the opportunity to purchase high-quality companies with more attractive valuations.
Focusing on opportunities, we asked some of our contributors which stocks are on our bear market watch list. Here’s why they care about steel producers steel dynamics (STLD 4.03%)Waste and Recycling Company WM (WM 1.91%)the lithium mining company Albemarle (ALB 6.22%) To see if a bear market eventually makes them buy.
Robin Gregg Brewer (steel dynamics): When it comes to steel mills, the industry giant Nokor It is generally considered one of the best. The co-founder and CEO of Steel Dynamics worked at Nucor before starting his own company. Not surprisingly, it uses the playbook that Nucor uses.
For example, Steel Dynamics uses small selective arc mills, which are more flexible than older blast furnace technology. The company is vertically integrated, owning scrap operations (a major input into the steel industry), steel mills, and manufacturing businesses. This last compilation is a major focus, as it allows Steel Dynamics to charge higher prices for its products, thus increasing margins. All of this is almost identical to what has brought Nucor so much success, which includes an astonishing streak of 49 years of annual revenue increases. That’s just one year shy of Dividend King’s status despite the fact that steel is a very cyclical industry.
So why not just buy Nucor? Well, Steel Dynamics is a much smaller company and still growing fast. For example, her earnings streak “only” spans 12 years (it’s a dividend earner), but the annual earnings growth rate over the past decade has been an impressive 10%. For reference, Nucor’s earnings growth rate has been in the low single digits during that period. Stock is rather expensive today, since the steel market is doing just fine. But when Steel Dynamics shares begin to fall, investors interested in earnings growth should start taking a serious look.
I’d like to go dumpster diving for this stock
Matt Dillallo (WM): Investors have bid for shares of collector and recycling company WM for several years. The company currently sells approximately 35 times its earnings and about 15 times its cash flow from operations, both of which are historically double. Because of that, the dividend yield has fallen to its lowest level in years at around 1.5%. This is despite 19 consecutive years of increasing payments, including a 13% increase last year.
Although I love the company – it has had consistent growth and is constantly returning money to investors – I haven’t added to my site in years because it’s too expensive for me. However, I have it on my watch list to buy if the bear market takes it lower. When stocks plunged during the early days of the pandemic, WM shares briefly traded with a more attractive valuation of less than 24 times earnings, less than 10 times cash flow from operations, and a dividend yield close to 2.4%. I missed the opportunity to add at the time, so I wouldn’t mind another opportunity.
In addition to the steady cash flow from the collection, disposal and recycling business, another factor I love about warehouse management is Investments in Renewable Natural Gas (RNG). WM plans to spend $825 million through 2025 to expand its RNG production by 600%. These investments will capture landfill methane to power its entire fleet and power one million homes. Renewable energy. This will save money, generate additional income, and reduce carbon emissions.
Although there is no guarantee that WM stock will collapse in a bear market – shares have recently been below their peak of 7% despite a decline of nearly 20% in Standard & Poor’s 500 It’s one stock I’d like to buy if a bear market made it a lot cheaper.
Strong stock in a booming industry
Neha Shamaria (Albemarle): Sales of electric vehicles (EVs) are growing at lightning speed, and I wouldn’t be surprised if nearly every growing investor owns electric vehicle stocks. Of course it has not been a smooth ride for many electric car manufacturers, particularly start-ups, but the supply side of the industry is profiting as global demand for electric vehicles booms.
Prices for batteries and key raw materials to make electric vehicles and batteries have risen, which may explain why stocks like Albemarle are soaring. above 27% in the past three months as of this writing when the S&P 500 is down 12% from its peak. So when there’s a bear market and Albemarle stocks, it’s time to consider buying them if you’re optimistic about electric vehicles.
Albemarle is one of the largest lithium mining companies in the world. Most of the batteries that power electric cars today are lithium-ion batteries, so it’s safe to say Albemarle is in the right job at the right time. The company recently delivered impressive first-quarter numbers, with lithium sales up 97% year over year. Albemarle also upgraded its sales guidance for 2022, buoyed by lithium prices that are expected to rise further.
In fact, its end market is so strong that Albemarle raised its steering again, or twice in about three weeks. Albemarle also sells bromine and catalysts, but the lithium segment currently brings in nearly half of its revenue. You’ll also be surprised to know that Albemarle has increased his earnings for 28 consecutive years. Although the dividend yield is less than 1% and very slim, its dividend and dividend growth should reap rich returns for investors who are reaping lithium stocks in the midst of a bear market.