Although Wall Street staged one heck of a four-day rally to end last week, it doesn't change the fact that the three major U.S. indexes are undergoing their steepest corrections in two years. Both the 125-year-old Dow Jones Industrial Average and widely followed S&P 500 were more than 10% below their respective all-time closing highs on March 14. Meanwhile, the tech-heavy Nasdaq Composite was decisively in bear market territory with a decline of 22% since its November peak.
These declines are in stark contrast to what investors thought would happen when President Biden took office a little over a year ago. The combination of dovish monetary policy coupled with historically low lending rates was expected to produce a long-term bull market. Instead, the unpredictability of global conflict and the Fed's lax monetary policy has made a Biden bear market a reality.
Image source: Getty Images.
But there's good news: Because all sizable declines are eventually erased by bull market rallies, a Biden bear market is your cue to buy unbeatable stocks at bargain prices. The following three stocks perfectly embody the term "unbeatable," even in a bear market.
Berkshire Hathaway
Nothing says "unbeatable" quite like having billionaire investor Warren Buffett managing part of your portfolio (sort of). Although the Oracle of Omaha won't directly invest your money, you can ride his coattails by investing in the company he runs, Berkshire Hathaway (BRK.A -0.84%) (BRK.B -0.98%).
Although Buffett isn't perfect, his track record speaks for itself. Since becoming CEO of Berkshire Hathaway in 1965, he's overseen the creation of more than $715 billion in value for shareholders (himself included), as well as delivered an aggregate return on the company's Class A shares (BRK.A) of better than 4,100,000%! He's shown that patience can pay off handsomely in any economic environment.
One of the things that makes Berkshire so special is its many cyclical ties. The vast majority of the company's portfolio is devoted to sectors, industries, and companies that fire on all cylinders when the U.S. and global economy are growing and potentially struggle a bit during recessions. If you wondering why Buffett doesn't hedge against recessions, the answer is simple: He's playing a numbers game. Since periods of economic expansion last significantly longer than recessions, staying invested and betting on long-term economic growth has proved to be a boring but profitable plan.
To build on this point, Buffett's company has a real affinity for bank stocks. You might be of the opinion that bank stocks are a poor place to put your money to work during a bear-market pullback, but that couldn't be further from the truth this time around. With the Federal Reserve forecasting seven rate hikes in 2022, banks are about to enjoy a surge in net interest income on their outstanding variable-rate loans. Bank of America, which happens to be Berkshire Hathaway's second-largest investment holding, has estimated a $6.5 billion boost to net interest income if there's a 100-basis-point parallel shift in the interest rate yield curve over the next 12 months.
If you need one more reason to trust in Buffett, consider that Berkshire Hathaway should generate well over $5 billion in dividend income this year.
Lovesac
Should you want an unbeatable stock for the Biden bear market that's completely under the radar, consider buying furniture stock Lovesac (LOVE -0.05%). Yes, a furniture stock.
I know what you're probably thinking, and you're correct. The furniture store operating model is fairly boring, heavily reliant on foot traffic, and the biggest furniture chains often rely on the same wholesale furniture distributors, leading to minimal differentiation. Lovesac stands out because it's aiming to turn this dinosaur of an industry on its head.
The most front-and-center differentiating factor with Lovesac is its furniture. Though it was initially known for its beanbag-styled chairs (sacs), approximately 85% of revenue now derives from modular couches known as sactionals. Sactionals can be rearranged dozens of ways, which ensures they fit most living spaces. They also comes with the choice of around 200 machine-washable covers, meaning they'll match the color or theme of virtually any household. But best of all, the yarn used in these covers is made entirely from recycled plastic water bottles.
Think about this for a moment: No other furniture company offers anything close to the scale of Lovesac's modular designs, nor can they come close to matching its eco-friendliness. Not surprisingly, Lovesac's target customer tends to be millennials in their mid-to-late 30s. Millennials are quite passionate about protecting the environment.
The other catalyst for Lovesac is its omnichannel sales approach. When the pandemic hit and foot traffic to brick-and-mortar stores plunged, Lovesac simply shifted its focus to online sales and pop-up showrooms. This allowed the company's lower overhead expenses to really shine and helped push it to recurring profitability two years sooner than Wall Street had originally forecast.
With double-digit sales growth expected through at least mid-decade, any weakness should be viewed as a buying opportunity.
Image source: Getty Images.
Salesforce
The third and final unbeatable stock investors can confidently buy during a Biden bear market is cloud-based customer relationship management (CRM) software provider Salesforce.com (CRM -0.10%).
In simple terms, CRM solutions are designed to help consumer-facing businesses better engage with their existing clients. Ultimately, better engagement should produce higher sales. CRM is being used for everything from managing service issues to overseeing online marketing campaigns and running predictive sales analyses for new products or services. As you can probably guess, CRM software is a natural fit for service industry companies, but it's been gaining a lot of steam in the industrial, financial, and healthcare sectors, too.
Though growth forecasts vary, the consensus is for global CRM software spending to grow by a low double-digit percentage through at least mid-decade. This is noteworthy given that Salesforce accounted for (drum roll) 23.9% of global CRM spend in the first-half of 2021. To put this figure into context, the No.'s 2 through 5 in market share behind Salesforce don't even total 20% of global CRM spend during the first-half of 2021 on a combined basis. Salesforce is the clear go-to for cloud-based CRM software, and that's unlikely to change anytime soon.
Salesforce founder and CEO Marc Benioff also deserves a lot of credit for orchestrating multiple earnings-accretive acquisitions. Some of the best-known include the purchases of MuleSoft, Tableau Software, and most recently Slack Technologies. While these buyouts did somewhat differentiate Salesforce's revenue stream, these acquisitions are more about being exposed to more small-and-medium-sized businesses and being able to cross-sell solutions on new platforms.
Seemingly nothing can stand in the way of Benioff and his desire to maintain at least a 20% sales growth rate for his company. His expectation is that Salesforce will nearly double its annual sales from $26.5 billion in fiscal 2022 (calendar year 2021) to at least $50 billion four years from now. That would make Salesforce a screaming bargain during a bear market pullback.
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams owns Bank of America and The Lovesac Company. The Motley Fool owns and recommends Berkshire Hathaway (B shares) and Salesforce.com. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
