Signs of a Bottom and Two Top Buys

03/25/2020 5:00 am EST

Focus: STRATEGIES

Charles Carlson

Editor, DRIP Investor

Where will this market bottom? That is a question on virtually every investor's mind, asserts dividend reinvestment expert Chuck Carlson, editor of DRIP Investor.

I can't tell you where the exact bottom will be. I can tell you what will be some signs of a bottom. A big sign will be the market being resilient in the face of negative news.

I know this sounds nonsensical. But in order to know whether a market has fully discounted the bad news, you need a market to stop going down on bad news.

The good news is that with time there will be more information as to the economic and health impact from the virus, and information is what is needed in order to calm the hysteria.

The market will have plenty of chances to be resilient in the face of negative news over the next eight weeks. Corporate profits, which will be announced beginning in mid-April, will likely be terrible. And the virus cases have yet to peak, which means more negative numbers will be coming out.

If the stock market starts to shrug off the bad news, I would feel more comfortable saying the market is bottoming.

The market devastation has taken down virtually every stock, including a lot of great companies. While buying now will probably feel early, you will be happy 12 months from now that you used the declines to at least nibble. Utilities have not been immune to the market weakness.

One utility stock that has been weak but offers good long-term potential is Southern (SO). Yielding nearly 5%, I like the stock's total-return potential and would be a buyer at current prices.

The market crash is taking down virtually every stock, including stocks that are typically perceived as "defensive" in nature. One stock is PepsiCo (PEP).

PepsiCo's stock is down roughly 27% from its 52-week high. Investors are probably concerned about the company's business in the restaurant sector, which has been impacted by the shutdowns of restaurants.

Nevertheless, I like the dividend yield of 3.7%, which provides me with decent return while I wait for the stock to rebound. For investors looking for quality on sale, PepsiCo offers a solid choice. I own these shares and would be a buyer at current prices.

Please note both Southern and PepsiCo offer direct-purchase plans whereby any investor may buy the first share and every share directly from the company.

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