Five Bargain Stocks in this Bear Market

This Bear Market has brought down a lot of stocks, but its also given investors somce good values.

This month, instead of putting out some growth stock ideas, I wanted to show some values that also have a good bit of safety. 

Within this list, four of the five stocks have high safety ratings. This isn’t a time to be gambling on speculative stocks. All these stocks are well off their highs, and I think they will prove to be bargains when we look back on them years from now.

Note: we make all our own charts & tables, old school style. The charts are one-year charts from our 2022 Q2. Not the company’s Fiscal Q2, we update our spreadsheets on the stocks we cover once per month, which for us when each company reported earnings April 1 to June 30th. These stock prices (and perhaps earnings estimates) have since changed

Home Depot (HD) is the world’s largest home improvement retailer, which offers building materials, home improvement products, lawn and garden items, and home improvement installation services. The company does an amazing job growing, while the store count stays consistent.

HD saw strong demand for home improvement last qtr, demand that exceeded management’s expectations. Project backlogs are very healthy, especially with professional contractors. 11 of the company’s 14 merchandise departments showed positive growth, driven by plumbing, building materials, millwork, and paint. Still, HD stock continues to slide lower because it is in the “Homebuilder” segment for investments.

HD seems to have more than 20% upside from these levels. Not bad for a safe stock in a Bear Market.

Merck (MRK) is a global healthcare company that provides customers with patented prescription medicines, vaccines, biologic therapies, and animal health products

Last qtr, MRK achieved 53% profit growth on revenue growth of 50%.  During that period, the company received multiple clinical approvals worldwide for their product portfolio with more applications under review. MRK saw sustained global demand across its healthcare products led by LAGEVRIO antiviral Covid pill, KEYTRUDA, GARDASIL, and other company-patented brands.

My Fair Value is a P/E of 15, which equates to $110 a share which is around 20% above where the stock is this qtr. Merck is also a very safe stock.

Five Below (FIVE) is a dollar-store concept for kids and teens that sells merchandise such as toys, games, party items, sports gear, clothes, candy & electronics for between $1 and $5.55 each. This company has the fastest dollar-store concept of all the dollar stores (including Dollar Tree and Dollar General).

During 2021, the company had construction and permitting delays caused by the pandemic, which slowed store growth, management. This year, FIVE plans to add 15 stores in urban markets, 11 of which are planned to be in New York City. The company now has self-checkout in 60% of the chain, with plans to be chain-wide by 2025. E-commerce sales are growing significantly faster than store sales.

My Fair Value for this stock is $172 a share, 45% higher than when these tables and charts were donw earlier in the quarter. That’s great upside potential, but this is a growth stock, thus FIVE has more risk than the other stocks in this list.

UnitedHealth (UNH), the nation’s leading health insurer, is comprised of two main divisions, UnitedHealthcare and Optum. Between the two divisions, UnitedHealthcare is the larger of the two, but Optum is going to be a catalyst for this company in the coming years as organizations take preventative measures to keep employees healthy. 

UNH continues to be the safe place to be as the company has been continuously growing profits, while management does stock buybacks and increases the dividend. Those are the traits I covet in a stock during a volatile market. Yet, the stock’s good news seems to be already priced into the stock as the stock has a P/E of 25, the highest the P/E has been in our qtrly research reports since we started covering the stock in July 2015.

My Fair Value is a P/E of 25, which equates to $541 a share which is around where the stock is this qtr. This isn’t really a “bargain”, but its a safe stock for a Bear Market, with 15% upside when we look out to next year.

Founded in 1886, Sherwin-Williams (SHW) has the #1 brand in paint (Sherwin-Williams), stain (Minwax), spray pain (Krylon), auto paint (Dupli-Color) and water sealer (Thompson’s). This company has a marvelous end-to-end supply chain, with around 100 manufacturing sites and distribution centers, 400 trucks and 1200 trailers to get paint and other goods to home improvement centers and close to 5000 company-operated stores.

SHW profits are going through a short-term decline due to unprecedented cost inflation, raw material shortages and logistical problems. Still, demand remains strong even as the company raises prices. Cost inflation and other supply disruptions are expected to progressively dissipate during the second half of 2022, and that should lead to profit growth returning later in the year.

This qtr, my Fair Value is $264 a share this year and $311 next year. Once again, mid-teens upside a year-out for a company that’s been around more than 100 years isn’t bad.

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