3 Resilient Stocks that are Zigging While the Market Zags

Contrarian

Markets have been on a downturn the last couple weeks. But these three resilient stocks are trending upward.

Most investors are well aware of the market’s slide over the past couple weeks, with the S&P 500 falling about 6% from its record high on September 2. The Nasdaq index, generally more volatile than the broad market, dropped a crisp 10% into correction territory. Even the S&P 500 equal-weighted index[1], in which all member stocks have the same weighting as opposed to being weighted by their market values, has dipped almost 5%. It’s quite a reversal from the end of August, when it appeared that markets were headed for a “melt-up.”

It’s impossible to know if this is merely an early-autumn correction that removes some froth from an otherwise robust market that will then resume its upward march, or the start of something more financially painful. What is clear is that few stocks have escaped the sell-off. Of the 1,232 stocks in our U.S. stock universe with market values over $2 billion, nearly 85% saw their prices either decline or remain unchanged.

Yet, if 85% of stocks didn’t fare well, that leaves about 15% that actually rose. For investors looking for stocks that might be more resilient than the former high-momentum names, this short list of 190 stocks that went up in price is a good place to start. This contrarian approach turned up some attractive opportunities in resilient stocks.

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Part of finding worthy ideas is setting aside those with little long-term appeal. Some stocks have limited chances of further gains.

For example, Navistar (NAV) received a recently-raised $43 cash acquisition bid from Volkswagen (VWAGY). It is a merger-arbitrage play and not what we’re looking for. Also, many early-stage biotech stocks advanced, but to us they are unanalyzable lottery tickets. Several airline stocks saw some uplift, yet most of these have deep fundamental issues including overbearing debt burdens that put them in a much higher risk category.

Stocks like the ones described below zigged up when the market zagged down for a good reason: they offer solid fundamentals and enduring value. Investors may be warming up to these resilient stocks.

3 Resilient Stocks Trending Up

Resilient Stock #1: Coca-Cola (KO)

Coca-Cola Company (KO) shares have severely lagged the market over the past decade, gaining about 75% while the S&P 500 has nearly tripled. Relatively new CEO James Quincey is making important changes to the company, including the recent re-organization announcement. Coca-Cola will change its operating structure, with sizeable staff layoffs, to streamline and accelerate its penetration in higher-priority products and geographies. Also, the company is reducing its product count, partly by de-emphasizing local brands that dilute its efforts to build its more powerful regional brands. Quincey’s heightened emphasis on healthier, non-soft drink brands is helping improve the company’s image and volumes among younger consumers. The shares also provide a 3.3% dividend yield.

Resilient Stock #2: Verizon (VZ)

Verizon (VZ) has long held to a basic strategy of providing high-quality telecom services. Unlike rivals like AT&T (T), which has diversified into satellite TV, media and entertainment, Verizon focuses exclusively on providing the “pipes” rather than what goes through them. This steady approach has allowed them to generate hefty free cash flow and carry a readily-manageable amount of debt. Importantly, Verizon is well-positioned for the transition to the emerging 5G technology. And recent results proved resilient despite the pandemic. Verizon’s valuation at 8x cash operating profits is quite reasonable. The company raised its dividend for the 14th consecutive year, and the shares offer an appealing 4.2% dividend yield.

Resilient Stock #3: Westlake Chemical (WLK)

Westlake Chemical (WLK) is an $8 billion market value company that focuses on high-margin niches in the chemical industry. Founded in 1986 with the acquisition of a single petrochemical plant in Louisiana, the company has successfully grown over the ensuing decades by selectively buying attractive companies and chemical facilities. It now is a successful and well-capitalized Fortune 500 business that receives awards like the “Forbes Top 100 Most Trustworthy Companies in America”. The founding Chao family continues to own 73% of the company, so it retains the valuable owner-operator philosophy. At about 8x its estimated post-recovery cash operating profits, the shares are attractively valued.

In our Cabot Undervalued Stocks Advisor portfolio of stocks, nearly a third of our 16 recommended stocks had positive returns during the market’s recent sell-off. For these and other undervalued stock recommendations, click here.

[1] as measured by the Invesco S&P500® Equal Weight ETF (RSP)

Bruce Kaser - Photo

Undervalued Stocks Expert Bruce Kaser

Bruce has more than 25 years of value investing experience, managing institutional portfolios, mutual funds, and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company. Now he is helping his Cabot Undervalued Stocks Advisor readers find those undervalued stocks that let you buy low and sell high!

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