The volatility in the market and the uncertainty in the economy make it much harder to figure out which stocks to buy these days. The bear market is almost one year old, and almost every sector has been hit by the downturn at some point. Nonetheless, there are high-quality stocks available at newly discounted prices for almost any type of investor.
The five stocks featured here possess different characteristics that make them good buys for anyone with $500 available to invest. Let’s take a look.
PepsiCo (PEP -2.52%) is a deceptively diversified consumer staples powerhouse. While it bears the name of its flagship soft drink, the company owns a portfolio of well-known brands across the food and beverage landscape. These include Lipton, Lay’s, Tostitos, Dole, Gatorade, Tropicana, Ocean Spray, and Rockstar.
It has a truly global footprint, with operations spread across six continents. This level of diversification in consumer staples leads to a low-growth, highly stable business. While it’s locked in heavy competition with rival Coca-Cola, both companies are so established that it’s unlikely for outsiders to meaningfully disrupt their operations in any short time frame.
Risk-averse investors who are worried about further stock market losses should consider PepsiCo for that reason. Its stability creates reliable cash flows that can be sent to shareholders as dividends, and this company is one of the finest in that regard. It has increased its dividend for nearly 50 consecutive years. If you’re looking to wait out the bear market storm, PepsiCo provides a 2.6% dividend yield and a beta under 0.6. It’s likely to hold up better than most other stocks, and the dividend provides a return, even when the share price looks ugly.
2. Bristol-Myers Squibb
Bristol-Myers Squibb (BMY -0.23%) is a pharmaceutical stock that’s resistant to market cycles and recessions. Shares of this drug company rose in 2022 while most of the market suffered. It has a large portfolio of products, with a heavy concentration in treatments for serious conditions such as cancer and heart disease.
A number of its portfolio drugs are considered blockbusters, with more than $1 billion in annual sales. Bristol-Myers Squibb’s new product pipeline has more than 50 candidates, with several drugs in late-stage trials that have investors excited. Along with some recent high-profile launches, these new products have positioned the pharmaceutical company to maintain its financial strength moving forward.
This stock is another defensive play with limited growth potential. It pays a healthy 3.2% dividend yield. Most investors are confident that its portfolio will allow shareholder distributions to continue growing into the foreseeable future. Its 0.5 beta suggests that it won’t get crushed if the market tumbles again in 2023, making this a nice value stock for limiting volatility.
Costco (COST -1.50%) is the largest wholesale club chain, with nearly 850 locations around the world. Groceries make up roughly half of the company’s revenue, while household items, clothing, and other staples contribute a significant portion as well.
The club subscription model is popular with families across most of the income spectrum, and the company’s sales tend to hold up well when household budgets get tighter. As a result, Costco’s historical revenue shows consistent growth in a way that few companies can replicate. Membership fees, which represent close to 20% of gross profit, also help stabilize cash flows when consumer spending slows.
Costco is a great stock to purchase in a downturn because its operations are relatively insulated from recessions. That successful financial history and low beta mean that it tends to retain much of its value in bear markets. Unlike many of its retail and consumer staples peers, the stock pays a low dividend yield, and its valuation ratios are somewhat high. That’s not ideal for most value investors, but it’s normal to see high-quality stocks fetch a premium.
Not everyone is scrambling for safety when the stock market drops. Growth investors with cash on the sideline are looking for riskier stocks that have become much cheaper. Zscaler (ZS -0.42%) is exactly that type of asset. The cybersecurity stock is down almost 70% from its 2021 peak, even though it keeps churning out monster growth numbers.
In its most recent quarter, Zscaler reported 53% revenue growth and nearly $100 million in free cash flow. Its growth rate has slowed, but this still remains one of the most reliable growth opportunities on the market. The company is an established leader in edge security, and demand for these sorts of products is likely to remain robust for years to come.
Zscaler’s reputation, along with an expanding product suite and strategic partnerships, makes this a good bet for elevated growth and strong cash flows for years to come. Now investors can buy shares at a 12.2 price-to-sales ratio, nearly one-fifth of the valuation one year ago.
5. Home Depot
Home Depot (HD -1.17%) only makes this list for investors who are willing to hold for the long term. This stock doesn’t have the same upside potential as Zscaler, and it isn’t as defensive as the other businesses. Recessions and high interest rates can hurt Home Depot by slowing down homebuilding activity and big-ticket item purchases. With the current macroeconomic environment, it could be a tough year or two for Home Depot.
However, this specialty retailer is in an attractive spot for long-term investors. It has developed a wide economic moat, thanks to its scale, brand strength, contractor sales, and product offering. Amazon and other online retailers haven’t quite disrupted the home improvement market as they have with other consumer goods.
A sustainable competitive advantage should allow Home Depot to take advantage of the strong housing demand that’s forecast over the next decade. Since 2010, there have been millions more households created than homes built in the U.S. It might be an uneven path to equilibrium from there, but that gap needs to be closed at some point, and Home Depot is set to be a beneficiary of that national megatrend.
The stock’s forward P/E ratio is below 20, and it pays a 2.3% dividend yield. This is an attractive long-term entry point for a blue chip stock that’s going to provide investment income, even if the market is down.