bear market like a Nasdaq Composite And this S&P 500 Since March and June of 2022 respectively, create a tighter investment climate. But for those who invest with a long-term mindset and don’t mind some short-term volatility, bear markets can present some great buying opportunities.
The companies that investors need to watch are companies that provide critical infrastructure for society and whose stable businesses can make them an excellent source of returns — in other words, industry leaders. Granted, many of these types of stocks can be cyclical and their performance is often tied to the broader economy. Therefore, they may struggle a bit during an economic downturn, but they also bounce back quickly when the economy starts to recover on its own.
Long-term investors may want to get into these three industry-leading stocks before the bear market is over.
1. Automated data processing helps businesses outsource essential tasks
automatic data processing (ADP -2.05%), better known as ADP, flies under the radar of many investors because its business, while important, isn’t very exciting. When companies are looking to outsource business functions, they often turn to ADPs. ADP provides human capital management (HCM) solutions to companies, handling everything from human resources to payroll and time tracking.
Its scale is phenomenal, with nearly 1 million customers worldwide. It also processes payroll for 39 million employees globally in 140 countries and territories. Its reach in the US is huge, and it processes payroll for one out of every six workers in the US. The secret to its success is its technology platform and extensive knowledge of regulations in various regions around the world.
You may be worried about a possible recession. After all, a recent Bloomberg poll showed that 81% of economists believe we will enter a recession within the next two years. A rise in unemployment would certainly hurt it, wouldn’t it? not enough.
During a contraction, companies look for ways to reduce their costs. One way they can do this is by outsourcing business functions to ADP. This is exactly what happened during the Great Depression of 2007-09. During this time, ADP grew its revenue and earnings per share and provided investors with a solid defensive stock during a deep market contraction.
The company manages its capital well, has grown its dividend for 48 consecutive years, and its returns have outperformed the market for decades — which is why adding this stable business to your portfolio before the bear market ends deserves a place.
2. Deere provides the machinery needed for our most important industries
Deere (DE -0.72%) provides machinery to the agriculture and construction industry, including tractors, harvesters, excavators, and more. It is maintaining its leadership position in the industry with its smart industrial operating model. This model helps farmers focus on strengthening their technology to help them increase efficiency, increase yields, lower input costs and reduce labor constraints.
Deere has some tailwinds working in its favor. For one, the war in Ukraine led to higher commodity prices which led to higher profits for those in the agricultural industry. Deere benefits because farmers invest more in their equipment to meet the increased demand. The company has been able to increase prices, and its margins have expanded as a result.
Another tailwind is spending from the Infrastructure Investment and Jobs Act. The law allocates $1.2 trillion to build roads, bridges, public transportation and airports, which will require machinery provided by Deere. Deere’s position as a leading provider of machinery and its strong backlog of orders make it another solid investment before the bear market ends.
3. Genrec Stock Is Starting to Look Like a Bargain
Generac (GNRC 4.19%) provides generators for businesses and homes — and holds a 75% market share of home generators. Its long-term growth is stellar, but Generac has struggled mightily and was one of the worst-performing stocks in the S&P 500 last year.
Not that business was terrible; This further drove the demand and achieved incredible growth in 2021. Sales are projected to increase by 50% in 2021, while net income is expected to increase by 57%. One driver of this growth was the power shortage in Texas, which led to an increase in demand for generators. Sales slowed last year; In the first three quarters of last year, sales increased by 32% while net income declined by 19%.
Genrec stock was punished for cutting its guided revenue by nearly half for the year, and valuations dropped as a result. Not only that, but one of its biggest customers declared bankruptcy, leaving it with $18 million in bad debt. Since peaking in November 2021, its shares have declined nearly 79%. For potential investors, the selloff has brought down its valuation significantly and made it an interesting buy. It’s currently trading at a price-to-earnings ratio (P/E) of just 16.9 — its lowest level in years.
GNRC PE Ratio data by YCharts.
Genrec stock outperformed itself, but the underlying business is still solid. While a potential recession could hurt it in the short term, it remains a top provider of generators for homes. It’s also expanded into solar, battery storage, and energy management systems — and it’s a solid stock to buy at a reasonable price before the bear market ends.
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