2 Best Stocks to Hold Throughout the Bear Market
Recent market volatility has pushed the stock market into official bear territory twice this year. The market rallied slightly, but still appears to be on a bear market trajectory. Bear markets, however uncomfortable, are not the time to worry or panic. Now is the time to buy and hold the best stocks.
The two main stocks in the real estate sector today are Prologis (PLD -2.19%) and American Tower (AMT 0.34%). Although both stocks are down this year, here’s why investors should hold these stocks through the bear market and well into the next market rally.
Real estate investment company (REIT) Prologis is the largest industrial operator in the world and one of the largest REITs by market capitalization. The company, which has strong ties to the growing e-commerce industry, owns and leases 1 billion square feet of warehouses, industrial bays, logistics centers and last-mile distribution centers on four continents.
Prologis has major acquisitions underway, including the purchase of Duke Real Estate, which will almost immediately add to its Base Operating Funds (FFO). But that’s not the only thing to do. Over the next five years, 56% of the company’s leases will expire, giving the REIT a tremendous opportunity to increase its net operating income (NOI). Even though the robust rent growth the company is experiencing today is slowing significantly, it still equates to about $2 billion in rising rental income.
Its stock price has fallen almost 23% this year due to general market volatility, but also growing concern about the impact of a recession on e-commerce spending. However, its recent performance is hardly cause for concern. Its occupancy rate in August 2022 was 97.7% while its effective net rental growth was 52.1%. Additionally, the REIT’s key metrics including free cash flow, FFO and net operating income increased 10%, 9% and 8% respectively.
With $5.2 billion in cash and cash equivalents, the company is more than able to withstand a bear market. Not to mention that its long-term growth prospects within the industrial industry could propel the stock into the next bull market.
American Tower is a communications infrastructure REIT that owns, develops and leases cell towers, antenna systems and data centers around the world. The company is the largest REIT by market capitalization and an absolute giant in the communications industry, leasing more than 222,000 communications sites in 25 countries. Its tenants include major mobile phone providers like AT&T, Verizonand T-Mobile as well as several international mobile phone providers.
Its core communications business has worked well for the company for the past 24 years. Since its IPO in 1998, the company has delivered a total return of 12.5%, outperforming the S&P500. But American Tower saw an opportunity to further diversify its holdings and grow revenue in 2021 by acquiring data center REIT CoreSite. Its 27 data centers represent about 7% of its annual revenue.
Reservations in Canada and the United States, which are rental activities between tenants and its communication sites, took a hit after the merger of Sprint and T-Mobile. This is one of the reasons the stock is down 9% at the time of this writing. However, hopefully that will improve now that American Tower has entered into a long-term partnership with Verizon for the continued rollout of 5G technology. Not to mention that the company still has huge market opportunities as 5G is adopted internationally and has the opportunity to grow its assets thanks to its strong balance sheet.
Communications activity will not slow in a bear market. People will continue to use their smartphones and rely on mobile data connections as they would any other time. Communication assets are an essential part of our world, which means its rental business should not fluctuate much over the long term. Additionally, its 2% dividend yield makes American Tower one of the top stocks to hold during a bear market and beyond.
Liz Brumer has positions at American Tower, Duke Realty and Prologis. The Motley Fool fills positions and recommends American Tower and Prologis. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.