Johnson & Johnson (JNJ), PepsiCo, Inc. (PEP): Why You Should Embrace Falling Markets

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It’s a scary investing world out there. These are volatile times, as the markets continually fret over if the Federal Reserve is close to tapering off its long-held policy of tens of billions in monthly bond purchases.

We have now seen 8 straight triple-digit moves in the Dow Jones Industrial Average, including two 200-point down days in a row. Interest rates are on the rise, shaking the temperament of market participants who apparently felt the Fed’s quantitative easing policies would last forever.

For those of us Foolish enough to see past the headlines and focus on prosperous, long-term investing, these big down days don’t scare us. In fact, we’re excited by the prospect of owning pieces of our favorite businesses at lower prices than we could a few days ago, and if you’re like us, you should be equally excited!

Johnson & Johnson (NYSE:JNJ)

Learn to love losses

It’s an unfortunate reality of most retail investors, but it’s true: investors tend to buy high and sell low. We often see a stock rising and, greedily, jump in so because we don’t want to miss out on the joy ride. At the same time, when stocks fall, many investors panic and sell at the exact wrong time.

If ‘buy high, sell low’ doesn’t sound like a profitable investing strategy to you, you’re on the right track. As Warren Buffett famously said, investors should be “greedy when others are fearful and fearful when others are greedy.”

I’ve written previously about high-quality blue-chip stocks I would love to own, but don’t because I couldn’t bring myself to pay prices that I considered to be too high. These include premier businesses such as PepsiCo, Inc. (NYSE:PEP), Kimberly Clark Corp (NYSE:KMB), and Johnson & Johnson (NYSE:JNJ).

Not too long ago, each of these stocks was teetering near all-time highs and trading for rich valuations. Each of these stocks was exchanging hands for 20 to 24 times trailing earnings. Moreover, since their stock prices had rallied so far in excess of their dividend growth, their dividend yields collapsed down to below 3%.

More recently, each of these stocks has come off their all-time highs, and I’m starting to get excited. These are premium businesses that deserve premium valuations, but if I can get them for multiples closer to the market’s approximately 17 P/E, I consider it an opportunity.

Get your shopping list ready

Each of these stocks has treated shareholders tremendously well over their long histories, and because of their rock-solid businesses, will continue to do so for many decades to come.

Consider that this year, PepsiCo, Inc. (NYSE:PEP) raised its dividend for the 41st year in a row. Kimberly Clark Corp (NYSE:KMB) has also raised its dividend for 41 years in a row, and has paid dividends for 79 consecutive years. Johnson & Johnson (NYSE:JNJ), meanwhile, is the gold standard for dividend payers–J&J has increased its dividend for an amazing 50 years in a row.

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