Market Pessimism Returns, 3 Stocks to Buy While Others Are Fearful

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Stocks have taken a bumpy ride this year. The S&P 500 was in a free fall for the first six months of 2022, tumbling about 24% from peak to trough on fears that rising interest rates to combat inflation could cause a recession. While falling gasoline prices over the summer provided some hope inflation was starting to cool — sending the S&P 500 up 15% from its bottom — new data showing inflation hasn’t peaked caused a renewed sense of pessimism. That has pushed the market back toward its lows.

With the market growing fearful again, our contributors think that some stocks are starting to look like great bargains. Three stocks they believe to be attractive long-term investments are Rockwell Automation (ROK -2.33%)Enbridge (ENB -5.09%), and Ford (F -3.60%). Here’s why they think investors should look past the current pessimism and buy these stocks.  

Bad news is good news

Reuben Gregg Brewer (Rockwell Automation): Wall Street has a terrible habit of throwing the baby out with the bathwater during bear markets, when the emotion of fear is driving the show. That’s something to consider when looking at Rockwell Automation and the 30% drubbing its shares have taken so far in 2022. The key here is to step back and look at the big picture.

Yes, Rockwell Automation lowered its full-year sales guidance when it reported fiscal third-quarter results. But the new range of 10.5% to 12.5% is still in the double-digits, which is really hard to complain about. And the company narrowed its guidance for earnings per share, but the new range was within the previous one, so that’s even less of a big deal. Two key problems right now are inflation, which is basically impacting all companies, and supply chain constraints that are limiting Rockwell Automation’s ability to produce products.

These are very real issues that management is working on. However, the industrial company’s backlog is at record levels, suggesting that demand for its automation and cost-saving products is still very strong. That makes sense if you think about it, since Rockwell Automation’s entire business model relies on customers that want to reduce costs. And that is something that becomes even more important during economic downturns and bear markets. If you look past Wall Street’s emotionally reactionary impulses and consider the big picture here, Rockwell Automation’s stock decline could actually be a good opportunity for those with a long-term view of things.

A high-quality high-yield stock on sale

Matt DiLallo (Enbridge): Shares of Canadian energy infrastructure behemoth Enbridge have tumbled 15% from their recent peak, driven down by the return of market pessimism. The sell-off pushed the company’s dividend yield up to an enticing 6.7%.

That payout is on one of the firmest foundations in the energy sector. Enbridge’s pipelineutility business model is at the low end of the industry’s risk spectrum. It enables the company to generate very stable cash flow supported by long-term contracts and government-regulated rates. Meanwhile, the company only pays out about 65% of that steady cash flow via the dividend. That gives it a healthy cushion while allowing it to retain significant cash to fund new investments. Enbridge further enhances its financial profile with a rock-solid investment-grade balance sheet, providing additional financial flexibility. 

Those two features give Enbridge billions of dollars in annual funding capacity. That provides it with capital to invest in its extensive backlog of development projects, repurchase its beaten-down shares, and make strategic investments. The company estimates that its current slate of expansion projects and internal growth drivers will deliver 5% to 7% compound annual distributable cash flow per share growth through 2024. Meanwhile, it has a growing pipeline of longer-term projects underway and in development. That should give Enbridge the fuel to continue increasing its dividend, which it has done for the last 27 straight years. 

With market fears weighing on this low-risk steady grower, now looks like a great time to buy and lock in its higher dividend yield and long-term upside potential.

Look beyond the near-term headwinds

Neha Chamaria (Ford): Sept. 20 was the worst day for Ford stock in more than a decade — shares of the auto giant plunged by double-digit percentages as the markets reacted to Ford’s supply warning and an abysmal forecast for the third quarter. The thing is, Ford expects a shortage in the supply of key parts to hit its sales volumes by nearly 40,000 to 45,000 vehicles and add $1 billion to its costs in the third quarter.

This came as a double blow as Ford’s shares were already under pressure in recent weeks on recession fears. Yet, for a company like Ford that has navigated bigger storms and has some solid growth plans, it’s an opportunity to become greedy while others are fearful.

After all, Ford believes this shortage of supply of certain parts is a temporary hiccup and expects to sell all of those vehicles in the fourth quarter. That’s also why the company stuck with its full-year adjusted earnings before interest and taxes (EBIT) guidance of $11.5 billion-$12.5 billion, which also means Ford still expects growth this year despite the several challenges it faced — it generated $10 billion in adjusted EBIT in 2021.

Also, just two days after it issued the Q3 warning, Ford said it will reorganize its global supply chain to secure more reliable sources of supply, among other things.

The most important takeaway here is that it is supply — and not demand — that’s stifling Ford’s growth right now. Ford’s total sales volumes have consistently beaten the industry average in recent months. Meanwhile, sales of Ford’s electric vehicles jumped fourfold in August, thanks to robust demand for the all-electric F-150 Lightning pickup truck. Ford’s electric vehicle plans are too big to ignore, and with demand already in place, the stock looks like a compelling buy right now.




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