The stock market has done an abrupt about-face. After rallying sharply last year, it has sold off hard in recent weeks. It officially entered correction territory this week, defined as a 10% decline from the recent high.
While stock market corrections can be tough to stomach, they often present great opportunities to buy high-quality stocks at lower prices. With that in mind, we asked some of our contributors for their top stocks to buy amid this year's market dip. Here's why they believe Nucor (NUE -1.87%), NextEra Energy (NEE 1.02%), and Nio (NIO 0.99%) look like great buys during the current sell-off.
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A big sell-off would be a welcome opportunity
Reuben Gregg Brewer (Nucor): Steelmakers are highly cyclical, and right now, the companies are experiencing a strong operating environment. There are hints that this could change, but for now, record and near-record results are the norm for U.S. steel giant Nucor. It is, probably, the best-run mill in North America. There are so many positive things to say about Nucor that it's hard to know where to start.
It is the largest and most diversified player. It has a No. 1 or No. 2 position in 12 different industry sectors. Its investment-grade-rated balance sheet is one of the strongest in the domestic market. It has a long history of investing for the future, particularly by using downturns when weaker peers are often just trying to survive. That said, the one thing that always impresses me most is the way it treats its employees and shareholders.
Nucor has a profit-sharing arrangement that rewards its workforce well when the company is doing well. But, when times are tough, employees make less. The good times are so generous that it's a great deal, and at the same time, it gives Nucor a break on salary expenses when it needs the help. For investors, Nucor is a Dividend Aristocrat, having increased its dividend for 48 consecutive years. The stock is pretty expensive today, but a big dip related to broader market issues would be an opportunity to pick up a great company -- particularly if the yield rose to something in the 3% range.
This industry leader is much cheaper
Matt DiLallo (NextEra Energy): Shares of NextEra Energy have taken a beating this year. The utility stock has tumbled more than 20% in the first few weeks of 2022. That's a stunning drop for such a high-quality company with a history of delivering strong performance. It has now given up most of last year's gains when it generated a 23% total return, outperforming the utility sector. That's something it has done in each of the previous three-, five-, 10-, and 15-year periods.
While the overall market correction sparked the sell-off, the company's recent management transition also seemed to spook investors. Investors seemed overly concerned that longtime CEO Jim Robo plans to step down in March. They're overlooking the fact that he's handing over the reins to a 19-year company veteran who has worked alongside the value-creating CEO for decades.
Investors also completely overlooked NextEra's strong fourth-quarter results and increased financial guidance. It grew its adjusted earnings per share by 10.4% last year, above its 6% to 8% long-term target range. Meanwhile, it sees double-digit earnings growth again in 2022. It also expects to deliver 6% to 8% earnings growth in 2023 from this year's higher base while extending its outlook through 2025. The company's focus on investing in renewable energy is helping drive faster growth.
This year's sell-off now has NextEra energy trading at about 26 times its forward earnings. While that's a bit more expensive than the average utility, it's significantly cheaper than the more than 35 times forward earnings multiple it fetched before the sell-off.
That cheaper price, combined with NextEra Energy's improved outlook, makes it look like a great buy amid this year's stock-market correction.
A top bet to play the EV megatrend
Neha Chamaria (Nio): Given the rapid pace at which sales of electric vehicles (EV) are rising, I wouldn't shy away from putting my money on an EV stock during a market sell-off. Right now, for example, I have my eyes on Nio -- shares of the China-based EV maker have shed almost 30% in just the past one month, as of this writing.
Specifically, there are three reasons why I like Nio. First, Nio is a bet on the world's largest EV market, China, where demand for new-energy vehicles is rising at a torrid pace. Nio is also making an effort to establish a footprint outside China, which is my second reason to be bullish on the stock. By 2025, for example, Nio plans to expand its presence to 25 countries and regions by 2025, with immediate plans including entry into more European markets after having already launched its vehicles in Norway last year.
Last but most important, Nio is gearing up to start deliveries of two models this year -- its flagship sedan ET7 and the much-awaited midsize sedan ET5. There's much more going at Nio, including a potential secondary listing in the Hong Kong stock exchange (or perhaps even Singapore, as rumors are floating right now). EVs are changing the dynamics of the auto industry, so it makes sense for an investor to own some EV stocks. Nio is just one such compelling EV stock that looks primed to rally once the market's fears die down.
