S&P 500 Bear Market: 3 Stunning Deals for Patient Investors

These three companies stand out for their incredible value with the S&P 500 declining 20%.

It’s official. As of midday May 20, 2022, the benchmark S&P 500 ( ^GSPC -0.81%) had declined more than 20% from its all-time closing high in early January, which places the widely followed index in a bear market .

There’s no denying that bear markets can tug at investors’ emotions and create jaw-dropping single-session price movements. The uncertainty of not knowing how low the market could go, or precisely how long a bear market could last, tends to feed on these investor fears. Image source: Getty Images. However, history is two-sided coin. Even though market corrections are an inevitable part of the investing cycle, data shows they typically resolve quickly. More importantly, every notable downturn in the broader market throughout history has eventually been erased by a bull market rally. Put in another context, every bear market has represented an opportunity for patient investors to scoop up great companies on the cheap.

With the S&P 500 mired in a bear market, a number of stunning deals have emerged for patient investors. Bank of America

The first plain-as-day bargain for patient investors is money-center giant Bank of America ( BAC -0.61%), which has lost about a third of its value in a little over three months.

The big worry for bank stocks of all sizes is that a recession could be on the horizon, or perhaps already here, as evidenced by the 1.4% gross domestic product retracement for the U.S. in the first quarter. Banks are inherently cyclical, which means economic downturns usually lead to an increase in loan delinquencies and charge-offs.

But the funny thing about cyclical businesses is that they enjoy far more time in the sun than under a cloud of uncertainty. Whereas recessions are inevitable, they typically only last a couple of quarters. By comparison, economic expansions can go on for many years. Buying bank stocks like BofA allow investors to take advantage of the long-term growth of the U.S. economy.

What really differentiates Bank of America and makes it, in my view, the top big bank to own right now is its interest rate sensitivity. No money-center bank will see their net interest income vacillate more as a result of interest rate yield curve movements than BofA. This is noteworthy given the Federal Reserve’s monetary policy shift that’s emphasizing aggressive interest rate hikes to combat historically high inflation.

In other words, the company is set to generate higher profits from variable-rate outstanding loans without doing any extra work. Per BofA, a 100-basis-point parallel shift in the interest rate yield curve should bring in an estimated $5.4 billion in added net interest income over the next 12 months.

Current and prospective investors should also appreciate Bank of America’s investments in digitization . The company ended the first quarter with 42 million active digital users, and has seen the percentage of sales completed online or via app climb to 53% from 30% in just a three-year stretch. Because digital transactions are so much cheaper for BofA than in-person or phone-based interactions, it’s allowed the company to consolidate some of its branches and improve its operating efficiency over multiple years.

Even with short-term headwinds, Bank of America looks like an amazing deal for long-term investors at roughly 8.5 times Wall Street’s forward-year earnings forecast. Image source: Getty Images. Walgreens Boots Alliance

Another stunning deal that sticks out from the crowd with the S&P 500 pushing into a bear market is pharmacy chain Walgreens Boots Alliance ( WBA -0.17%).

For the past two years, Walgreens has been hit with a double whammy. First, COVID-19 lockdowns dramatically reduced foot traffic into its stores, which hurting front-end retail sales and clinic revenue. Now the company is being hampered by historically high inflation, which tends to largely impact low-income consumers. This could have a negative impact on the company’s retail sales in the coming quarter(s).

However, neither of these issues is a long-term deterrent to Walgreens Boots Alliance’s growth strategy — and that’s what’s important.

Management is currently in the midst of executing a multiyear turnaround strategy that’s designed to boost the company’s operating margins, increase its organic growth rate, and position it to improve engagement at the grassroots level.

To start with, Walgreens has successfully reduced its annual operating expenses by more than $2 billion . What’s more, it did so a full year ahead of schedule.

Yet while the company was busy trimming costs in certain areas, it was willingly spending on various digitization initiatives. In particular, the […]

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