Bear markets can come about for various reasons, including a slowdown in economic activity, a tightening of fiscal and monetary policy, and a geopolitical crisis like the Russian invasion of Ukraine. Regardless of the cause, the common theme among bear markets is that investors look for security in less risky stocks and assets.
Resiliency is often measured by the degree to which a business’s sales and profits fall due to the factor or combination of factors that cause the bear market. To take it a step further, resilience can be demonstrated by a business emerging more robust from a bear market than it entered.
Here are three stocks that fit that description regarding how they responded to the COVID-19 pandemic and its aftermath.
Starbucks (NASDAQ:SBUX) was hit hard by the COVID-19 pandemic. The company generates a significant part of its revenue from folks walking into its coffee shops. For sure, the forced closure of all those locations to help slow the spread of the deadly virus hurt sales. That said, the business adapted quickly, permanently closing downtown locations and offering parking lot pickup.
Sales fell in 2020, but not as much as you would expect — 11.3% from the year before. And the business emerged more robust than ever in 2021. Sales and operating income of $29 billion and $4.6 billion were the highest in the past decade.
Like Starbucks, McDonald’s (NYSE:MCD) suffered a slowdown in sales when it closed thousands of restaurants to in-person diners. The fast food giant’s management also adapted well to the onset of the pandemic, emphasizing digital sales and securing partnerships with third-party delivery services.
As a result, McDonald’s revenue increased by 21% in 2021, which led to earnings per share of $5.25, the highest in the last decade. Fortunately for shareholders, the moves that McDonald’s made are likely to pay off long term.
Alphabet‘s (NASDAQ:GOOGL) (NASDAQ: GOOG) slowdown at the pandemic’s onset was short-lived and demonstrated the tech titan’s importance. The parent of Google generates the vast majority of its revenue from advertisers. Understandably, businesses would cut ad spending at the start of the pandemic when the near term was uncertain. However, once it was evident that consumer spending would remain robust, businesses ramped up ad spendingand Alphabet benefited from the rebound.
Alphabet grew sales by 41% in 2021, almost double its compound annual growth rate over the last decade. Profits followed as operating income expanded from $41 billion in 2020 to $78.7 billion in 2021.
In addition to proving their resiliency, these stocks are selling at inexpensive valuations as shown in the chart. Except for McDonald’swhich you could have bought at a lower level at the pandemic’s onset, the others sell near their lowest valuations in five years.
Sustainable businesses with proven success recovering from disastrous circumstances and favorable pricing are just a few reasons I am looking to buy these inventory during a bear market.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.