Let’s not sugarcoat things: It’s been a trying year for most investors. Since hitting their all-time closing highs, the iconic Dow Jones Industrial Average and widely followed S&P 500 have declined by more than 10%. It’s been an even uglier ride down for the growth-dependent Nasdaq Composite, which has shed as much as 31% of its value on a peak-to-trough basis since November and is squarely in the grips of a bear market.
Although the velocity and unpredictability of downside moves during bear markets can be unnerving and test the resolve of investors, history conclusively shows that these dips are buying opportunities — at least for patient investors. Over time, every notable decline in the major indexes, including the Nasdaq Composite, has eventually been cleared away by a sustained bull market.
For investors with cash who are looking to put their money to work, inexpensive stocks abound. What follows are three of the cheapest stocks you can confidently buy right now, even with the Nasdaq in a bear market.
Ford Motor Company
The first exceptionally cheap stock investors can scoop up as the Nasdaq plunges is automaker Ford Motor Company (NYSE: F). Shares of Ford are currently valued at just six times Wall Street’s forecast earnings for 2023.
Similar to the broader market, investors have hit the brakes on shares of Ford, and other auto stocks, over the past five months. Ford’s stock has lost half its value in that time, with Wall Street clearly concerned about the rising prospects of a U.S. recession, as well as persistent supply chain issues that are impacting the auto industry. While these are meaningful headwinds, they’re providing investors an opportunity to buy a well-known, profitable business at a discount.
The most exciting thing about Ford is the steady electrification of its product line. By the end of 2026, the company plans to invest $50 billion in electric vehicle (EV) and battery research. Ford plans to operate its EV business separate from its combustion-engine vehicles, with the goal of launching 30 new EVs globally by the midpoint of the decade. In 2026, CEO Jim Farley foresees his company producing 2 million EVs annually.
Although most investors are focused on Ford’s domestic ambitions — it is a Detroit automaker, after all — they might be ignoring its international reach. In particular, the company managed to increase sales in China by nearly 4% in 2021 to approximately 624,000 units. Ford has the deep pockets, necessary infrastructure, and brand awareness to become a major player in China, world’s largest auto market, over time.
Another reason investors can bank on Ford is its industry-leading truck lineup. The company’s F-Series pickup has been America’s top-selling truck for 45 consecutive years. What’s more, the F-Series has been the best-selling vehicle in the U.S., period, in each of the past 40 years. Because trucks sport notably better margins than sedans, the consistency of F-Series sales provides a hearty amount of operating cash flow for Ford.
A second phenomenally cheap stock investors can buy with the Nasdaq mired in a bear market is storage solutions company Western Digital (NASDAQ: WDC). Based on Wall Street’s consensus, Western Digital is valued at a mere six times next year’s forecast earnings.
Similar to Ford, the big knock against Western Digital is going to be its cyclical nature. When the U.S. and global economy struggle, it’s not uncommon for personal computer sales and other tech-based orders to tail off.
The other potential downside for Western Digital and its peers is that they have a habit of oversupplying storage solutions when pricing power improves. However — and this is an important “however” — supply chain issues tied to the pandemic have all but ensured that the company and its peers won’t be able to expand production in 2022, if not well beyond. This “bad” news is actually good news in disguise, as it should help buoy the pricing power on the products it’s selling.
On the other side of the coin, Western Digital has multiple growth catalysts. It’s benefited from increased personal computer sales during the pandemic, and at least in the short run has received a boost from the beefed-up storage needs of next-generation gaming consoles.
But the biggest catalyst of all for Western Digital arguably hasn’t taken shape yet. In the years to come, standard hard-disk drives (HDDs) in data centers could be replaced by solid-state drives using NAND flash memory. NAND is generally less expensive and offers better storage capacity than standard HDDs. By the midpoint of the decade, Western Digital could very well be riding a wave of growth thanks to its NAND solutions.
If you need one more good reason to buy Western Digital, consider this: Activist investor Elliott Management is calling on the company to split into two businesses (one company for legacy PC hard drives and another that focuses on flash memory). Though nothing is guaranteed when activist investors get involved, the entire goal of investor activism is to create value for shareholders. If Elliott Management sees hidden value, you might, too.
Teva Pharmaceutical Industries
The third ultra-cheap company investors can confidently buy with the Nasdaq in a bear market is pharmaceutical stock Teva Pharmaceutical Industries (NYSE: TEVA). Teva is unquestionably the cheapest stock of the three I’ve listed here, with a forward-year price-to-earnings multiple of a little over three.
Whereas the pandemic and recession fears have pummeled Ford and Western Digital, the beating shares of Teva have endured over the past five years is somewhat self-inflicted. The company grossly overpaid for generic-drug maker Actavis, which ballooned its debt; it has seen its top-selling drug lose exclusivity (Copaxone for multiple sclerosis); and it has faced a mountain of litigation. With regard to the latter, Teva was sued by 44 state attorneys general over its role in the opioid crisis.
Although Teva has faced its fair share of headwinds, there are also plenty of reasons to believe things are looking brighter.
For example, investors should understand that, on a macro basis, healthcare stocks are quite defensive. No matter how poorly the stock market performs, people are still getting sick and requiring prescription medicine and healthcare services. This means historically high inflation and a bear market should have virtually no impact on Teva’s operations.
On a more company-specific basis, CEO Kare Schultz has done wonders since taking the reins in late 2017. In a little over 4.5 years, Schultz has reduced the company’s annual operating expenses by billions of dollars and whittled down net debt from north of $34 billion to $20.7 billion as of the end of March. Though work remains to be done, Teva’s financial flexibility is better than it’s been in a long time.
Furthermore, Teva has made notable progress with its opioid litigation overhang. Despite losing a trial in New York, the company was victorious in California, and it has settled with regulators in a number of other key states. It’s quite possible that Teva’s gray cloud could be gone within the next couple of months.
While Teva doesn’t offer the growth prospects of Ford or Western Digital, it looks incredibly inexpensive given its potential to generate $2 billion or more in annual cash flow.