3 stocks you’ll be happy to own when the bear market is over
Down 20.6% through June, the S&P500 is off to its worst start in five decades and is officially in a bear market. It can be hard to weather bear markets, especially when your portfolio loses value month after month.
However, bear markets allow you to buy high-quality companies at discounted prices when others are scared. It’s unclear when this bear market will officially end, but when it does, you’ll be happy to own these three high-quality stocks. Let’s find out a bit more about them.
Visa (V 0.38%) helps customers transfer money via debit cards, credit cards and other payment products in 200 countries. The company holds a substantial lead in the payment network space, processing more than $11 trillion in payments in 2020, 80% more than its closest competitor, MasterCard.
The global payments company operates a relatively asset-light business model and thus generates strong cash flow and high profit margin. Over the past 12 months, Visa’s profit margin was 51%, while its free cash flow was $15.3 billion. This is cash that the company can use to reinvest in the business, make acquisitions, pay dividends or buy back shares.
Visa has a strong advantage over the competition, thanks to the strength of the network effect of its payment network, and can perform well in a variety of economic conditions. The company receives commissions as a percentage of the payment volume that passes through its network, which makes it resistant to inflation. But the company does even better when consumer confidence is high and economic conditions are stable.
Visa’s dominance in the payments market puts it in a good position to continue winning. You will be happy to own the stock once the bear market is over.
PayPal Credits (PYPL -2.15%) also helps customers transfer money and was one of the first fintechs that propelled payments into the digital age. The company connects 392 million customers with 34 million merchants worldwide.
After gaining big amid the pandemic, PayPal stock has taken a beating and has fallen 76% in the past year. The company has lowered its guidance several times since forecasting revenue growth of 18% last year. In April, he guided revenue growth between 11% and 13%. The company’s growth has slowed, in particular due to the end of its partnership with eBay.
The company also changed its goal of adding many customers to its platform to encourage its existing customers to use it more frequently. To encourage customers to use the app more often, PayPal offers more than 50 products and services for consumers and merchants, including credit and debit cards, digital wallets, buy-it-now options and the platform point of sale Zettle.
The company is currently trading at a price/earnings ratio (P/E) of 25, the cheapest it has ever been, and a forward P/E of 15. While PayPal stock has been beaten, the company has created a stellar digital -payments ecosystem. This is another stock you will be happy to own when the bear market ends.
3. American Bancorp
American bank (USB -0.49%) provides banking services in 2,200 branches in the Midwest and Western regions of the United States. Its strength lies in its laser focus on traditional banking activities, namely the growth of deposits and the granting of loans. The bank is very selective when lending its money, focusing on the best quality loans, which gives it an edge over its peers with an excellent return on equity (ROE).
US Bancorp’s focus on traditional banking makes it more sensitive to changes in interest rates than its peers. In the first quarter, the bank’s net interest income (NII) increased by 3.6%. In its recent filing in March, the bank said a 2% increase in interest rates would raise its NII by another 3.3%.
Banks are vulnerable to economic conditions and the current market has made some companies hesitant to take action until conditions improve, which may result in slower loan growth for banks. When the bear market ends, demand for loans should pick up and US Bancorp is ready to take advantage.
Courtney Carlsen has no position in the stocks mentioned. The Motley Fool holds positions and recommends Mastercard, PayPal Holdings and Visa. The Motley Fool has a disclosure policy.