There’s no denying that this has been one of the worst starts to a year in stock market history. Through this past weekend, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite were lower by 18%, 23%, and 31%, respectively, on a year-to-date basis. Relative to their all-time closing highs, both the S&P 500 and Nasdaq are firmly in a bear market.
In one respect, a stock market plunge can be unnerving. Few investors enjoy seeing large unrealized losses mount over short periods.
On the other hand, history has conclusively shown that buying high-quality stocks during these plunges is a smart move for patient investors. That’s because every notable decline in the major U.S. indexes has eventually been erased by a bull market.
The 2022 stock market plunge has unearthed a number of incredible deals. What follows are five amazing stocks you won’t regret buying on this bear market dip.
The first phenomenal stock investors can scoop up at a discount is theme park operator and content kingpin Walt Disney (NYSE: DIS). Although pandemic shutdown fears persist in certain countries (e.g., China), these short-term worries won’t steer Disney away from its highly successful growth strategy.
One reason to feel incredibly optimistic about Disney’s future is its library of proprietary content. This content, which is what fuels attendance at its theme parks and drives people to watch its movies, has been shown to transcend generations. It doesn’t matter whether you’re 5 years old and visiting Disneyland for the first time or taking your grandchildren to a Disney movie at the theater — the nostalgia Disney content evokes is a clear-cut competitive edge.
Investors should also be excited about the rapid growth of Disney+, the company’s streaming platform. In the 2 1/2 years since its launch, Disney+ has signed up 137.7 million people. By comparison, it took Netflix more than 10 years to surpass 137.7 million subscribers. Although this is a money-losing segment for the moment, Disney+ is expected to grow into another high-margin revenue channel that supports the company’s vast and rapidly growing ecosystem.
American Eagle Outfitters
A second amazing stock you won’t regret buying during the stock market plunge is specialty retailer American Eagle Outfitters (NYSE: AEO). Even with the company facing a buildup of inventory and higher freight costs tied to global supply chain disruptions, it brings a number of competitive advantages to the table.
For example, American Eagle’s management team has been stellar for decades when it comes to pricing and inventory. This is a company that doesn’t cheapen its brands with steep discounts, but also doesn’t price potential shoppers out of making a purchase. If inventory issues do arise, it has historically moved unwanted merchandise out of its stores quickly. This tends to result in a higher percentage of full-price purchases during periods of economic expansion.
American Eagle Outfitters has made big investments in its direct-to-consumer sales as well. In spite of a challenging retail environment, digital sales in the fiscal first quarter (ended April 30) were 48% higher than comparable online sales in the first quarter of 2019 (i.e., before the pandemic).
With niche pricing for its teen-focused retail stores and intimate apparel brand Aerie growing like wildfire, American Eagle Outfitters is primed for long-term success.
Another no-brainer buy as the market plunges is regional bank stock U.S. Bancorp (NYSE: USB), the parent company of U.S. Bank. Even if the U.S. pushes into a recession at some point in the next couple of quarters, U.S. Bancorp’s long-term potential makes it a rock-solid buy.
The beauty of bank stocks is that they’re cyclical. Although recessions tend to bring about loan delinquencies and charge-offs, periods of economic expansion last considerably longer than recessions. Over time, banks benefit from increased lending and deposit activity, along with the natural growth of the U.S. and global economy.
U.S. Bancorp also benefits from its stellar digital engagement trends. As of the end of February 2022, 81% of its customers were active online or via the mobile app, with 65% of total sales being completed digitally. That’s up 20 full percentage points from the beginning of 2020. Loans completed online or via mobile app are considerably cheaper for the company than in-person or phone-driven loan sales. In other words, the company’s investments in digitization are making it progressively more efficient.
The cherry on the sundae is that with interest rates rising, U.S. Bancorp’s net interest income on its outstanding variable-rate loans is set to climb.
A fourth sensational stock that can be confidently bought as the stock market tumbles is biotech Exelixis (NASDAQ: EXEL). Despite poor investor sentiment getting the better of healthcare stocks at the moment, this company’s operating performance and balance sheet do all the talking.
There’s no question that Exelixis’ key growth driver is cancer drug Cabometyx. This foundational therapy is approved to treat first- and second-line renal cell carcinoma, as well as previously treated advanced hepatocellular carcinoma. These indications alone have propelled Cabometyx past $1 billion in annual sales.
What investors should know is that Cabometyx is being studied as a combination therapy or monotherapy in well over five dozen additional trials. Though not all of its clinical studies will be successful, the company’s lead drug has ample opportunity to expand its label and support a lofty list price.
What’s more, Exelixis is sitting on a mountain of capital: about $2 billion, including cash, cash equivalents, and restricted cash equivalents and investments. This capital has afforded the company the flexibility to reignite its internal research program and to partner with a variety of cancer-drug developers.
A fifth and final amazing stock that you won’t regret buying during the market plunge is payment processor Visa (NYSE: V). Heightened fears of a recession are a short-term concern for a company with a long-term double-digit growth runway.
Visa is absolutely dominant in the U.S., which is the largest market for consumption in the world. In 2020, it controlled 54% of purchase volume on credit card networks in the U.S. (among the four major U.S. networks), and has grown its share faster than any of the other major credit card networks since the Great Recession ended in 2009.
But Visa is far from U.S.-dependent. The company plans to expand its payment infrastructure into underbanked and emerging markets where cash is still the primary facilitator of transactions. It also has deep pockets and has shown a willingness to use acquisitions as a pathway to expansion (e.g., the Visa Europe acquisition in 2016).
Investors will also note that Visa acts strictly as a payment processor. Since it avoids lending, it isn’t exposed to loan delinquencies, and therefore doesn’t have to set aside capital for possible loan losses. This small detail is huge in explaining how Visa bounces back from economic downturns faster than other financial stocks.
Sean Williams has positions in Exelixis. The Motley Fool has positions in and recommends Netflix, Visa, and Walt Disney. The Motley Fool recommends American Eagle Outfitters and Exelixis and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.