One of the most challenging aspects of investing in the stock market is dealing with market corrections, crashes, and bear markets. While 2021 saw stocks rise with minimal corrections, all three major stock indices plunged into a bear market last year, marking the worst performance since the 2008 financial crisis.
Bear markets can be intimidating and emotionally taxing for investors, but history has shown that they present ideal buying opportunities for both young and older investors. While we cannot predict the exact bottom of a bear market or how long a decline will last, every bear market in history has eventually been fully recovered by a bull market.
The current bear market could be an especially smart time for retirees to invest in high-quality businesses at apparent discounts. Here are three ideal stocks retirees can confidently buy during a bear market.
NextEra Energy (NYSE: NEE)
The first perfect stock for retirees to buy during a bear market is NextEra Energy, an electric utility company.
It is no secret that during times of market volatility and uncertainty, one of the smartest places to invest money is in essential goods and services. Whether you own or rent a home, you will most likely need electricity to power at least some of your appliances. Regardless of how well or poorly the U.S. economy or stock market performs, electricity demand remains relatively stable year over year.
Most electric utility companies in the U.S. operate as monopolies or duopolies, meaning consumers have little to no choice in choosing their electricity provider. This ensures a steady cash flow for companies like NextEra Energy.
However, NextEra is more than just a typical electric utility. It is a global leader in solar (5 gigawatts of operational capacity) and wind energy (22GW of operational capacity). This heavy investment in renewable energy significantly lowers its electricity generation costs.
Thanks to these clean energy investments, NextEra has managed to grow its annual earnings per share at an average compound rate of 8.3% since 2007, compared to the single-digit earnings growth typical for utility companies.
NextEra is far from finished with its clean energy expansion. It ended 2022 with a backlog of 19GW in signed wind, solar, and storage contracts and expects to sign between 32.7GW and 41.8GW of clean energy contracts between 2023 and 2026.
As of 2023, NextEra Energy’s stock is trading at 22 times next year’s expected earnings, making it one of the cheapest valuations it has seen since 2018. Moreover, patient investors will enjoy a 2.5% dividend yield, supported by a management team focused on growth.
Visa (NYSE: V)
The second ideal stock for retirees during a bear market is Visa, a leading payment processing company.
Visa is a financial stock, and financial stocks are often cyclical. This means that during an economic recession, consumer and business spending slows down, which can negatively impact Visa’s revenue and profitability. However, it is essential to recognize that economic cycles impact different companies in varying ways.
Historically, recessions have lasted between two and 18 months, whereas economic expansions have lasted several years. During these extended periods of economic growth, Visa benefits from increased consumer and business spending. In other words, Visa tends to grow alongside the U.S. and global economies.
Visa’s dominance in the world’s largest consumer market, the United States, also plays to its advantage. According to SEC filings, Visa accounted for 52.6% of the U.S. credit card network purchase volume in 2021—making it the only major payment processor to meaningfully increase its market share since the 2008 financial crisis.
Interestingly, Visa’s success is partly due to its strategic decision not to become a lender. Unlike some of its competitors, Visa does not generate income from lending, which exposes lenders to loan losses during economic downturns. Since Visa does not need to set aside capital for bad loans, it has greater financial flexibility to rebound quickly from recessions.
Visa’s growth potential is also immense, as most global transactions are still conducted in cash. This provides Visa with ample opportunities to expand into emerging markets organically or through acquisitions.
Currently, Visa’s stock is trading at 23 times forward earnings, its lowest valuation since 2016, making it an attractive buy for retirees.
AT&T (NYSE: T)
The third ideal stock for retirees to buy during a bear market is AT&T, a telecommunications company.
Over the past two decades, telecommunications services have become an essential need for both consumers and businesses. Regardless of economic conditions, people are unlikely to cancel their wireless or internet services or stop using smartphones. For AT&T, this means consistently low customer turnover (churn rate) in any economic environment.
While AT&T’s high-growth days may be behind it, the company still has two key catalysts that support its high-yield dividend, making it an attractive stock for retirees.
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The Expansion of 5G Wireless Infrastructure
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After nearly a decade of 4G LTE speeds, 5G adoption is driving a sustained device upgrade cycle, expected to continue through the mid-2020s.
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More importantly, 5G will significantly increase data consumption, and data is where AT&T generates its highest margins.
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Broadband Growth
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AT&T Fiber added over 1 million customers for five consecutive years as of 2022.
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The company has invested heavily in 5G broadband services and mid-band spectrum acquisition, which will support its continued growth.
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AT&T is leveraging its bundling strategy to increase customer retention and profitability.
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Additionally, AT&T improved its financial flexibility after spinning off WarnerMedia and merging it with Discovery to form Warner Bros. Discovery in April 2022. As part of this merger, the new company assumed some of AT&T’s prior debt, while AT&T also received cash payments. This improved balance sheet ensures AT&T can comfortably maintain its 5.9% dividend yield.
Between 2013 and 2016, when AT&T benefited from 4G LTE-related data consumption growth, its stock traded at 12–14 times forward earnings. Today, retirees can buy AT&T’s stock at less than 8 times forward earnings, making it a low-risk, high-reward investment for long-term income seekers.
