How to Make Money in a Falling Stock Market

Making money in a bear market takes time, but it can be done. When you find yourself wanting to pull the panic button on your stock portfolio, keep in mind that the stock market has always recovered from every sharp sell-off in U.S. history. And despite our economy still floating in the proverbial toilet, it will recover again this time. The key to a bear market is to buy and hold in strong companies.  This is not the time for day-trading because of the extreme volatility in the markets.

During the last few months, you have probably noticed that your portofilo values have declined by at least twenty percent.  If your money is in companies that have had consistent earnings in the black, great cash flows and good dividend yields, don’t sweat and don’t panic.  It may take some time, but you will eventually see your portfolios begin to grow again.

Long-term trading success is achieved by buying into companies with low price-per-earnings ratios (P.E.) and price-per-sale ratios (P.S.) of less than 1.00.  However, if the company produces something that consumers will always use (can you imagine Pepsi or Coke going bankrupt, even in this dismal economy?), allow flexibility in your P.S. ratios, as long as the number is no higher than 4.00. Look at target prices and learn to use charts!   There are three types of charts: bar, line and candle.  Find which works the best for you, study it, and use it for every company you look at.

Here are a couple of companies to get you started:

WalMart (symbol: WMT):

P.E. ratio= 11

P.S.  ratio= .41

Dividend Yield = 2.7%

WMT is a safe bet in this crazy market, and will not cause you alarm with volatile price changes.  It is currently selling at $49.09 per share, with a one year target price estimated at $60.76.  Do the math, you can’t go wrong. 

Another favorite low risk company is IBM.

P.E ratio= 13.61

P.S ratio= 1.97 (a little high but it is currently selling at $166.46 per share with an estimated target price of $193.50)

Dividend Yield = 1.8%.

Johnson and Johnson is another safe bet. (symbol: JNJ) 

P.E. ratio= 14.62

P.S. ratio= 2.71 (it is highly unlikely that consumers will quit buying skin care and pharmaceutical products)

Dividend Yield= 3.4% 

JNJ currently sells for $61.12 per share and has a one year target price of $72.07.

All of these companies supply products that everyone uses.  They are making money and not going anywhere, so they are safe bets for making money.

Lastly, avoid the volatile industries like airlines, financial companies as well as oil companies.  These industries are dependent on our economy, which in today’s world is a lose-lose situation.

Bear markets can be profitable if you know what to do.