I buy these 3 resilient stocks during a bear market

Bear markets can be nerve-wracking, but falling stock prices and valuations are also making patient investors look for gains in wealth. However, you need to think carefully about what type of business you want to own when the going goes wrong. Some businesses are more sensitive to the economy than others, but the most resilient businesses are those that can maintain sales even in times of recession.

Here is why I buy Wholesale Costco (NASDAQ: COT), Netflix (NASDAQ: NFLX), and video game creator Activision Blizzard (NASDAQ: ATVI) if the markets suddenly fall.

Image source: Getty Images.

Costco

Costco Wholesale might have the toughest business of all. Even taking into account the annual membership fee of $ 60, consumers are saving money with volume discounts on everyday essentials. The company sells so cheaply that membership fees contribute significantly to its bottom line.

Comparable sales have remained strong during the pandemic, and the current inflationary environment appears to be sending more people looking for value, which is good news for Costco. The stock has hit new highs in recent weeks as investors anticipate strong near-term results. The company’s October sales results showed same-store sales acceleration of 11.8% from 9.4% in September, 9.1% in August and 8% in July.

Costco also excels in its corporate culture. The average seniority of employees at Costco is nine years and their average hourly wage ranks among the best of American retailers. Additionally, Costco enjoys promoting within its ranks, which has given it consistent performance over the years.

Despite all the things to love about Costco, I wouldn’t buy the stock just yet. The stocks have reached the moon and are trading at an expensive price / earnings ratio of 48. If a bear market drives the stock down, this is an exceptional company that I would definitely buy at a lower valuation.

Netflix

Netflix’s subscription-based business model and affordable prices make it a very resilient company to buy during a recession or bear market. This was posted last year, when millions of people were temporarily out of work due to the pandemic, but Netflix has consistently reported accelerated growth in paid subscriptions around the world.

People just aren’t going to give up their Netflix habit. On the one hand, the content selection is getting too good. For the price of a few coffees, subscribers have access to the widest range of shows and movies of any streaming service. A record 142 million households watched the latest hit show Squid game in September, and Netflix’s future growth is expected to increase its content budget to create much more hits.

Netflix has been one of the best growth stocks to own for many years. An investment of $ 1,000 10 years ago would be worth more than $ 60,000 today. The stock probably won’t repeat those returns by 2030, but it could certainly turn $ 1,000 into $ 3,000.

Analysts see a path to at least 500 million subscriptions globally, more than double the 213 million reported for the third quarter. Additionally, investors can expect management to focus on increasing operating profits over the long term. I would look to add Netflix stocks during any market downturn.

An adult playing a video game with a child.

Image source: Getty Images.

Activision Blizzard

The best video game maker Activision Blizzard isn’t as tough as Netflix or Costco, but it’s close. The attachment of millions of people to Netflix is ​​comparable to the loyalty of many gamers to their favorite video games. Activision ended the last quarter with 390 million monthly active users across all of its games, including over 100 million who play the popular Call of Duty First person shooter.

One of the reasons Activision has a resilient business model is that most of its sales come from spending on relatively affordable items like virtual currency in Call of Duty. Call of Duty points can be purchased for as low as $ 1.99 and serve as in-game currency to unlock additional in-game content. Revenue from in-game expenses, subscriptions and other items was almost 75% of total revenue in the first nine months of 2021, while new product sales made up the balance.

The in-game spending portion of the business provides a much smoother revenue stream throughout the year for Activision Blizzard. While premium game versions can cost $ 60 or more on console, most gamers tend to stick with the same title for months on end thanks to frequent game updates.

Additionally, digital sales from in-game spending tend to generate a higher profit margin. In the past year, the company generated $ 2.8 billion in free cash flow on $ 9 billion in revenue. It has a strong balance sheet, with a net cash position of $ 6.1 billion. The stock already looks like a good deal, trading at 16.9 times free cash flow, so any further drop in the stock price would make this stock a real bargain.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Myra R.

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