A Bear Market for Stocks? Not for These Two Companies

A Bear Market for StocksHindsight is always 20/20 when it comes to the stock market, and it’s impossible to be right with your picks all of the time. Recently, in this column we’ve been looking at a number of large-cap companies that I view as being worthy of consideration when they’re down in value on the stock market.

One of the most successful initial public offerings (IPOs) in recent history is MasterCard Incorporated (NYSE/MA). Among large-cap companies, this one only pays a very small dividend, but it’s been a powerhouse wealth creator on the stock market. The stock just hit an all-time record high, and while it did pull back with the broader market during the financial crisis of 2008/2009, it’s been going virtually straight up since being listed in 2006. I remember when both MasterCard and Visa Inc. (NYSE/V) listed on the stock market, and I thought that they would both make for good investments. What a mistake it was not buying shares in these companies. MasterCard’s stock chart is featured below:

MA Mastercard stock market chart

Chart courtesy of www.StockCharts.com


MasterCard is now a $65.0-billion company. The stock doubled over the last year and a half, and it tripled over the last three and a half years. A lot of investors might not think those kind of returns are available from large-cap companies, but obviously, the market proves they’re wrong.

Another powerhouse wealth creator among large-cap companies is Alexion Pharmaceuticals, Inc. (NASDAQ/ALXN), which doubled in value on the stock market over the last year and a half. (Alexion has recovered from every major price retreat it experienced over the last 10 years.) Pharmaceutical and biotechnology companies are great stocks to consider, because these stocks aren’t correlated to the action in the broader stock market. Many large-cap companies trade similarly to the main stock market indices; but in biotechnology, institutional investors go ape for drugs, because as we all know—there’s big money in those pills. Alexion Pharmaceuticals’ stock chart is featured below:

ALXN Alexion Pharmaceuticals, Inc Nasdaq stock market chart

Chart courtesy of www.StockCharts.com

For all the penny stocks, turnaround stocks, value plays, and micro-cap miracles, a handful of the right large-cap companies can make just as much or more money on the stock market. And I’m not even talking about dividend paying stocks. Of course, investing in large-cap companies as a strategy isn’t as saleable to the marketplace as others. Very few people can resist the idea of a penny stock going through the roof.

But consider my example of Alexion Pharmaceuticals. This time last year, the stock was trading at $75.00 a share. The year before that it was $43.00; the year before that it was $23.00; and at the beginning of 2007, the stock was $10.00 a share (split-adjusted, of course). That’s a 10-bagger, and it serves to illustrate that large-cap companies can be just as profitable as a penny stock that’s turning around.

In my view, the stock market’s been in a bear market for the last 12 years. But I think we have to attribute less weight to what we think the stock market is and how it’s measured. (See “It’s Been Twelve Years—It’s Still a Bear Market for Stocks.”) In hindsight, investing in a company like MasterCard was total common sense. Most people use their credit cards every day, collecting points or reward dollars. The only people who don’t like credit cards are business owners, because they have to give credit card companies a piece of the action. That’s why it’s such a great business. Looking back, MasterCard and Visa were probably the two best large-cap companies to hit the stock market in recent history.

When I was a stockbroker 17 years ago, I felt that the cards were stacked against investors. They definitely were before the age of the Internet and discount brokers. All you need to do is own the right basket of large-cap companies, and you’ll probably do better than most investors. Owning the right large-cap companies with dividend reinvestment is a great way to create wealth if you don’t need the income. I don’t know what’s going to happen to the stock market this year, but I’ll be focusing less on the broad market indices and more on individual companies. This year could be a flop, but even if it is, it’s likely that more people will use their MasterCard. Forget the market, and focus on businesses. It’s still a bear market for stocks, but there are a lot of opportunities within it, especially among large-cap companies.