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.
No, the S&P 500 isn’t in a bear market – a 20% decline from its peak – just yet. It has, however, been flirting with one for some time. The Nasdaq Composite, 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 feel like it.
And so if this is how things are going to continue, investors might want to arm themselves with the best stocks they can find . And right now, those stock picks should focus on resiliency during deep 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 May 17, 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.
1 of 10 10. Berkshire Hathaway
Market value: $694.1 billion
Dividend yield: N/A
Analysts’ consensus recommendation: 2.25 (Buy)
Warren Buffett’s Berkshire Hathaway ( BRK.B , $314.81) 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 low volatility relative to the S&P 500, tends to lag in up markets.
By the same token, however, few names generate outperformance as reliably as Berkshire 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 gained 5.2% for the year-to-date through May 17, vs. a decline of 14.2% 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: $130.3 billion Dividend yield: 2.1% Analysts’ consensus recommendation: 1.92 (Buy) The healthcare sector is a traditional safe haven when markets turn south. Where CVS Health ( CVS , $99.60) 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. Sign up for Kiplinger’s FREE Closing Bell e-letter: Our daily look at the stock market’s most important headlines, and what moves investors should make. “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 […]
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