Bear markets are painful, but they can actually be healthy for the stock market. For instance, they tend to push investors with limited conviction to get out of stocks. If you think long-term, however, you’ll see deep corrections as a chance to buy (often great companies) while others are fearful. The key is to decide ahead of time what stocks you’d like to pick up if only they were selling for a cheaper valuation.
Three stocks you might want on your list are Prologis (PLD -0.56%), Enterprise Products Partners (EPD -0.57%), and Chipotle Mexican Grill (CMG -1.95%). Let’s see why these three no-brainer stocks are ones to buy in a market correction.
1. Prologis: Getting hit hard
Real estate investment trust (REIT) Prologis owns warehouses across the world, with over 1.2 billion square feet of space and more than 6,600 customers. It is easily one of the biggest names in the warehouse space and has operations in the most important global trade hubs. During 2020, when the coronavirus pandemic upended consumer buying patterns and supply chains, the stock started to move sharply higher. That advance peaked in 2022 when economic growth began to stall, leading to a roughly 20% price decline over the past year.
The dividend yield is currently up to around 2.5%. That’s materially higher than where it was, and dividend growth investors might want to take a closer look at the stock right now. Note that the dividend has been increased at a 10% annualized clip over the past decade or so. Moreover, occupancy remains high (98%), and the REIT has growth ahead as it raises rental rates on expiring leases. Management expects core funds from operations (FFO) growth to be around 9.5% in 2023. There’s no reason to believe that dividend growth is going to end anytime soon. That said, if the stock were to pull back further, say, pushing the yield into the 3% to 4% space, it would start to look even more attractive.
2. Enterprise Products Partners: Steady as it goes
Enterprise Products Partners is a master limited partnership (MLP) that owns a massive collection of midstream assets in North America. In fact, the partnership’s portfolio of pipelines, storage, processing, and transportation infrastructure would be virtually impossible to replace. Enterprise is a vital cog in the global energy supply chain. But here’s the key: It charges fees for the use of its assets, which makes its cash flows highly reliable over time. This helps explain why the MLP has been able to increase its distribution annually for 24 consecutive years despite operating in the highly cyclical energy industry.
Here’s the most exciting part, though. The distribution yield is a very attractive 7.6%. Income-focused investors looking to maximize the income their portfolios generate might want to look at it right now. Notably, Enterprise’s distributable cash flow covers its distribution by a hefty 1.8 times, so there’s little reason to worry about the payment and ample room for more growth. That said, bear markets often lead investors to throw the baby out with the bathwater. And if Enterprise’s units were to fall even further, they would just get more and more enticing.
3. Chipotle: Still growing
Switching gears, Chipotle Mexican Grill doesn’t pay a dividend at all. The story here is growth, as the restaurant chain continues to expand. For example, it opened 43 new locations in the third quarter of 2022 and has plans to keep going, with a long-term target of operating more than 7,000 locations (up from 3,100 today). There’s no sign that it is about to slow down or that customers won’t be there to support it along the way.
To put some numbers on that, Chipotle’s third-quarter 2022 sales rose 13.7% year over year. Same-store restaurant sales were up 7.6%. And restaurant operating margins increased 180 basis points despite the inflationary environment. In other words, even during a difficult economic period when the restaurant was increasing prices, people still wanted to eat at Chipotle. The stock is down around 20% from its highs in 2021 and might be of interest to long-term growth investors. That said, the stock has often seen huge pullbacks during bear markets — sometimes as deep as 50%. So even if you don’t really fancy growth stocks, a further pullback in Chipotle could easily make it start to look attractive to value investors.
The key to dealing with bear markets is being ready for them ahead of time. One of the best ways to do that is to create a list of stocks you’d like to own if they were only cheaper. Prologis, Enterprise, and Chipotle are all fairly attractive right now but could get even more attractive if there’s a deeper market pullback. If these names aren’t on your wish list now, consider adding them.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Prologis. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.