It can be difficult to find S&P 500 stocks to buy on the downside, as it’s unclear how much further they will fall.
No respite for stock market investors this fall. As long as Fed Chairman Jerome Powell continues to raise interest rates aggressively, it looks like the market will come under additional pressure. The indices took another sharp drop this week following the Fed’s latest decision, and there is no break in sight yet.
Experts mainly focus on inflation and current macroeconomic conditions. And that’s understandable. However, when the stock market drops this far and this fast, investors eager to enter the arena can seize some interesting opportunities.
Let’s be clear, there is no indication that the S&P 500 is at near-term lows, so there is some risk in these S&P 500 stocks to buy on the downside.
Chairman Powell made it clear in his speech this week that inflation remains consistently too high and the Fed still has some way to go to bring inflation under control. Current market difficulties could easily persist into 2023.
But at some point, the reward outweighs the risk in the case of these S&P 500 stocks to buy on the downside. It may not be the ultimate bottom, but stocks are cheap enough in these seven high-quality S&P 500 stocks to create a high probability of success for investors who put the money to work today.
Leader in building materials and home improvement Home deposit (NYSE:HD) has seen its shares fall in 2022, with HD stocks down 35% year-to-date, making it a prime candidate among S&P 500 stocks to buy lower.
Investors are pouring HD on expectations that a slowing housing market will be a big deal for the company.
In theory, that makes sense. In practice, this is not really the case. For one, HD stock held up relatively well during the 2008 financial crisis, despite the fact that the epicenter of that crisis was in the housing market. As new home construction plummeted in 2008, people continued to spend on their existing homes.
Home Depot should be under even less stress this cycle.
People have taken up hobbies, like gardening, during the pandemic, which will drive Home Depot’s continued sales in the future. Additionally, long-term demographics continue to support more new households.
Millennials are looking to improve their living conditions and sooner or later will buy property related to the house. All that to say that while Home Depot may have weak earnings for 2023, the longer-term outlook will be good, meanwhile stocks have been hammered this year.
Nike (NYSE:NKE) the stock fell below $100 after the Fed’s latest rate hike; stocks are now down 40% year-to-date.
Traders are shedding the name as the consumer spending boom wanes, China’s apparel market remains troubled and inflation concerns have squeezed profit margins. Of course, that makes NKE one of the surprise S&P 500 stocks to buy on the downside.
At this point, analysts see Nike’s earnings fall 12% to $3.75 per share in its 2023 fiscal year, putting the stock at 26 times forward earnings, but things pick up sharply after that.
According to analyst consensus, earnings jumped 22% in 2024 and another 20% in 2025, taking NKE stock to just 22x and 18x earnings in those years, respectively. That’s a good deal!
This is a classic example of a big company and brand that has been punished too much in the short term for the current economic mess. For long-term investors, however, it’s a great entry point into the world’s best-known sportswear brand.
It’s been an absolutely dreadful year for the streaming media industry. In 2020 and 2021, people subscribed to high-priced streaming subscriptions as the pandemic shut down other entertainment alternatives. This year, however, we have seen the other side of the coin.
As real-world entertainment venues reopen, streaming companies such as netflix (NASDAQ:NFLX) saw new signups slow while existing subscriber churn rates increased.
That’s not the only problem either. There has been a so-called “race to the bottom” effect in streaming. The rash of new streaming services has created a ton of competition and made it difficult for existing players to raise prices.
As each media company seemingly rolls out its own streaming service, it also drives up the prices for creating new content and fragments the existing market.
Over time, these issues should resolve on their own. Weaker streaming services will merge or shut down. And streaming’s long-term growth is set to continue as it inexorably drives customers away from traditional TV and cable offerings. As long as Netflix remains the market leader, it will always be one of the S&P 500 stocks to buy on the downside.
3M Company (MMM)
3M (NYSE:MMM) is an industrial powerhouse that manufactures a wide range of products for fields as diverse as packaging materials, occupational safety, dental instruments and healthcare software, among others.
The shares are down 35% year-to-date, which is an outsized move for a stable blue chip company like this. Traders are dumping stock around product liability fears for faulty earplugs.
Although the overall legal liability seems huge, the actual expenses for 3M are likely to be much lower, as usually happens with these kinds of lawsuit situations.
Meanwhile, the company is an excellent growth and income investment at an exceptionally low price. It is a dividend king, having increased its dividend for more than 50 consecutive years.
The dividend yield for MMM stock has now exceeded 5% with the strong sell-off of recent months. With stocks at their lowest point since 2013, this is a rare deep value opportunity among S&P 500 stocks to buy on the downside.
Sherwin-Williams (NYSE:SHW) is one of the dominant players in the paint market. Painting may not be a glamorous business, but it is always in demand.
There is a perception that the SHW stock is vulnerable thanks to the falling housing market. However, much of the paint consumption is on existing structures rather than new buildings.
Sherwin-Williams also has a strong competitive moat. The company has maintained close relationships with professional painters, who rely on Sherwin-Williams for its highest quality products and excellent customer service.
By being the paint the pros choose, it tends to ensure stable product demand and insulate the company from cheaper rivals.
Sherwin-Williams has been a terrific long-term performer. It has generated double-digit annualized earnings growth for many years and achieved a high P/E ratio to match its track record of success. With a 40% decline year-to-date, Sherwin-Williams is easily among the S&P 500 stocks to buy on the downside.
Ecolab (NYSE:ECL) is by far the world leader in sanitation, hygiene and water treatment services.
However, the market remains highly fragmented. Ecolab is the number one player, but only has an estimated 8% share of the total global addressable market. Its next closest competitor, Diversity (NASDAQ:DSEY) only has a 2% share.
This puts Ecolab in an enviable position. It can continue to acquire smaller hygiene and sanitation businesses around the world, adding more growth to its overall platform. Ecolab is targeting 15% annualized earnings growth over the long term and has a huge track record to achieve that rate for many years to come.
In the short term, ECL stock has been hammered thanks to the pandemic. Major customers such as hotels and restaurant chains needed (and could afford) far less Ecolab services.
As the global economy reopens and travel and hospitality resume, Ecolab stands to benefit from a strong reopening push that is not currently priced into ECL’s stock price.
Semiconductors are historically a booming sector. This trend is repeating itself now.
Companies like Intel (NASDAQ:INTC) saw record sales in 2021 as consumers stocked up on new computers and home electronics for working and studying at home. Today, the market is significantly oversupplied and industry sales have plummeted.
INTC’s stock was completely destroyed, falling to multi-year lows. The company’s last quarterly earnings report was a complete mess, and things don’t look much better in the coming quarters either.
However, for patient investors, this is a golden opportunity. Intel remains a dominant player in semiconductors, with its $15 billion annual R&D budget giving it huge resources for innovation and new product development.
On top of that, the Biden administration’s bill to prop up the semiconductor industry should provide Intel with ample help as it ramps up its manufacturing capabilities in the United States. Intel is a leading company in a vital industry whose share price has fallen too much in admittedly dire short-term industry conditions.
As of press date, Ian Bezek held a long position in ECL, NKE, MMM and INTC shares. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.