Finding S&P 500 stocks to buy on the dip can be tough since it’s not clear how much more they’ll dip.
There’s no respite for stock market investors this fall. As long as Fed Chair Jerome Powell keeps hiking interest rates aggressively, it seems that the market will be under further pressure. Indexes took another sharp turn lower this week following the latest Fed move, and there’s no pause in sight yet.
Pundits are focused primarily on inflation and macroeconomic conditions at the moment. And that’s understandable. However, when the stock market falls this far this fast, investors willing to step into the arena can grab some compelling opportunities.
Let’s be clear, there’s no sign that the S&P 500 is set to bottom in the near term, so there is some risk in these S&P 500 stocks to buy on the dip.
Chair Powell made it very clear in his speech this week that inflation remains persistently too high and that the Fed has a ways to go in reining in inflation. The current market struggles could easily persist into 2023.
But at some point, the reward outweighs risk in the case of these S&P 500 stocks to buy on the dip. This may not be the ultimate bottom, but shares are cheap enough in these seven high-quality S&P 500 stocks to set up a high probability of success for investors putting money to work today.
Home Depot (HD)
Leading building materials and home improvement retailer Home Depot (NYSE:HD) has seen shares tumble in 2022, with HD stock down 35% year-to-date, making it a prime candidate among S&P 500 stocks to buy on the dip.
Investors are dumping HD on expectations that the slowing housing market will be a big problem for the company.
In theory, that makes sense. In practice, it’s not really the case. For one thing, HD stock actually held up relatively well during the 2008 financial crisis, despite that crisis’ epicenter being in the housing market. While new home construction collapsed in 2008, people kept spending on their existing homes.
Home Depot should be under even less stress this cycle.
People took up hobbies, such as gardening, during the pandemic which will drive ongoing sales at Home Depot going forward. Additionally, long-term demographics continue to support more new households.
The millennial generation is looking to improve their living conditions and will be buying home-related goods sooner or later. All that to say that while Home Depot may have soft earnings for 2023, the longer-term outlook will be fine, meanwhile, shares have gotten hammered this year.
Nike (NYSE:NKE) stock ticked below the $100 mark following the latest Fed rate hike; shares are now down 40% year-to-date.
Traders are dumping the name as the consumer spending boom fades, the Chinese apparel market remains troubled and inflationary issues have pressured profit margins. Of course, this sets NKE up as one of the surprise S&P 500 stocks to buy on the dip.
To that point, analysts see Nike’s earnings dropping 12% to $3.75 per share in its 2023 fiscal year, putting the stock at 26x forward earnings, but then things improve sharply.
The analyst consensus has earnings jumping 22% in 2024 and another 20% in 2025, taking NKE stock to just 22x and 18x earnings in those years, respectively. That’s a bargain!
This is a classic example of a great business and brand that has gotten overly punished in the short term for the current economic mess. For long-term investors, however, this is a great entry point into the world’s most well-known athletic apparel brand.
It’s been an absolutely dreadful year for the streaming media industry. In 2020 and 2021, people signed up for streaming subscriptions at elevated rates as the pandemic closed off other entertainment alternatives. This year, though, we’ve seen the flip side of that.
As real-world entertainment venues reopen, streaming businesses such as Netflix (NASDAQ:NFLX) have seen new sign-ups slow down while existing subscriber churn rates have climbed.
That’s not the only problem, either. There’s 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 hard for existing players to raise prices.
As every media company seemingly rolls out its own streaming service, it also drives up the prices to make new content and fragments the existing marketplace.
Over time, these issues should resolve themselves. Weaker streaming services will merge with each other or shut down. And the long-term growth of streaming should continue, as it inexorably takes customers from traditional television and cable offerings. As long as Netflix remains the leader in the market, its always going to be one of the S&P 500 stocks to buy on the dip.
3M Company (MMM)
3M (NYSE:MMM) is an industrial powerhouse making a vast array of products for fields as diverse as packaging materials, workplace safety, dental instruments, and healthcare software among many others.
Shares are down 35% year-to-date, which is an outsized move for a stable blue chip company sort of this one. Traders are dumping the stock around fears relating to product liability for defective earplugs.
While headline legal liability seems huge, the actual expense to 3M is likely to be far smaller, as usually happens with these sorts of lawsuit situations.
Meanwhile, the company is a great growth and income investment at an unusually cheap price. It’s a dividend king, having raised its dividend for more than 50 consecutive years.
MMM stock’s dividend yield has now topped 5% with the heavy sell-off in recent months. With shares at their lowest point since 2013, this is a rare deep-value opportunity among S&P 500 stocks to buy on the dip.
Sherwin-Williams (NYSE:SHW) is one of the dominant players in the paint market. Paint may not be a glamorous business, but it is always in demand.
There’s a perception that SHW stock is vulnerable thanks to the fall in the housing market. However, a huge chunk of paint consumption is for existing structures rather than just new buildings.
Sherwin-Williams also has a strong competitive moat. The company has fostered close relationships with professional painters, who rely on Sherwin-Williams for its better quality products and strong customer service.
By being the paint that the pros pick, this tends to ensure steady product demand and insulate the company from cheaper rivals.
Sherwin-Williams has been a tremendous long-term performer. It has generated double-digital annualized earnings growth for many years and earned a high P/E ratio to correspond with its track record of success. With the stock down 40% year-to-date, Sherwin-Williams is easily among the S&P 500 stocks to buy on the dip.
Ecolab (NYSE:ECL) is far and away the world’s leader in providing sanitation, hygiene, and water treatment services.
However, the market remains highly fragmented. Ecolab is the number one player but has only an estimated 8% share of the total global addressable market. Its next nearest competitor, Diversey (NASDAQ:DSEY) has just a 2% share.
This gives Ecolab an enviable position. It can keep acquiring smaller hygiene and sanitation companies around the world, adding more growth to its overall platform. Ecolab targets 15% annualized earnings growth over the longer term and has a massive runway for achieving that rate for many years to come.
In the short-term, ECL stock got hammered thanks to the pandemic. Leading customers such as hotels and restaurant chains needed (and could afford to pay for) far fewer services from Ecolab.
As the global economy reopens and travel and hospitality pick up, Ecolab should enjoy a strong reopening surge that is not currently accounted for in ECL’s stock price.
Semiconductors are historically a boom/bust sector. That trend is playing out again now.
Companies like Intel (NASDAQ:INTC) enjoyed record sales in 2021 as consumers stocked up on new computers and household electronics to work and study at home. Now, the market is dramatically oversupplied and sales in the industry have slumped.
INTC stock has gotten absolutely clobbered, falling to multi-year lows. The company’s last quarterly earnings report was a total mess, and things don’t look much better over the next few 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 tremendous resources for innovation and new product development.
On top of that, the Biden Administration’s bill to support the semiconductor industry should provide Intel with ample assistance as it ramps up its U.S. manufacturing capabilities. Intel is a leading company in a vital industry whose share price has fallen too far amid admittedly terrible short-term industry conditions.
On the date of publication, Ian Bezek held a long position in ECL, NKE, MMM, and INTC stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.