3 Bear Market Stock Picks That Can Soar

Amid the broad market sell-off that has taken the S&P 500 down 8% since its Jan. 26 high, a number of stocks have fallen even further into bear market territory, with the market downdraft today pulling these stocks even lower as of midday. But with as many as 35 S&P stocks down more than 20% since the end of January, recent analyst ratings suggest there are bargains to be had. A number of these stocks, including General Mills Inc. (GIS), Tractor Supply Co. (TSCO) and United Parcel Service Inc. (UPS) have received recent upgrades from Wall Street analysts, according to Barron’s.As of the close of trading before the holiday weekend, General Mills has fallen 25% since Jan. 26, and trades at a forward price to earnings ratio (forward P/E) of 13.41. Both Tractor Supply and UPS have fallen 20% over the same period, and trade at forward multiples of 14.10  and 3.32, respectively. The S&P 500 is currently trading at a forward P/E ratio of 16.85. (See also: Why You Should Buy the Sell-Off).

General Mills

While the branded food manufacturer has struggled amid changing consumer preferences for fresh over packaged food, a grocery price war set off by Amazon and Walmart, and other problems, analysts believe that food stocks have paid their dues. Based on forward P/E ratios, the company’s stock is trading at a 20% discount to the broader market. That wasn’t the case just a few years ago when investors were paying premiums of 20% to 30%.

Susquehanna Financial Group analyst Pablo Zuanic writes that “recent share gains in snacks and cereal; potential for a rebound in margins; and a modest valuation” are all positive signs for General Mills. He upgraded the stock on March 22, according to Barron’s. (See also: General Mills Reacts to Inflation in Food Industry).

Tractor Supply

The supplier of rural homeowner goods like tools, farm equipment and animal feed, saw its average same-store sales growth rate since the early 1990s cut in half, causing obvious concerns for investors and a similar halving of the stock’s P/E ratio since 2015. Currently, it is trading at a 16% discount to the broader market.

The good news, at least according to MoffettNathanson analyst Oliver Wintermantel, is that the drop-off in same-store sales growth is due to temporary factors like deflation in farm products and a couple of relatively mild winters. He expects that sales growth to bounce back to between 3% and 4% over the next year, and the company will also benefit from the recent corporate tax cut.

UPS

The letter and package courier’s recent guidance that capital expenditures would rise by more than $1 billion this year compared to last year and by more than $3 billion per year since 2011, has given investors reason to worry whether there will be enough leftover to cover the current 3.6% dividend. Trade war risks and a possible Teamsters strike are also weighing on UPS.

But the company’s stock is currently trading at a 21% discount to the market, and Stifel analyst David Ross notes that UPS’s dividend yield is one of the highest among transportation companies. He also argues that returns on the company’s invested capital remain high, as he upgraded the stock to a buy early last month.

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