The S&P 500 Entered a Correction Last Week. 3 Stocks Down 20% or More to Buy on the Dip.

A stock market correction refers to a 10% to 20% pullback from a peak. The S&P 500 (SNPINDEX: ^GSPC) -- an index that includes roughly 500 of the country's biggest, profitable publicly traded businesses -- hit correction territory on March 13. It's the first time this has happened since 2022.

During stock market volatility like corrections, shares of quality companies often go on sale, even if the market doesn't stay in the correction zone. This provides investors with better-than-normal chances to buy shares of quality companies at more attractive prices. And in my opinion, that includes PepsiCo (NASDAQ: PEP), Ulta Beauty (NASDAQ: ULTA), and PayPal (NASDAQ: PYPL) right now.

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1. PepsiCo

Few businesses are as iconic as Pepsi. Not only is the company's beverage portfolio impressive -- a portfolio that now includes upstart prebiotic soda company Poppi thanks to a nearly $2 billion acquisition -- it also owns well-known snack brands, including chips from Frito-Lay. Given its scale and the breadth of its portfolio, the business is extremely stable and resilient, which means that Pepsi stock rarely goes on sale.

However, Pepsi stock is on sale now, down about 25% from 2023 highs. Over the last 10 years, Pepsi traded at 26 times earnings, on average. At this writing, it trades for just 21 times earnings, a solid 19% discount to its usual valuation.

PEP PE Ratio data by YCharts

Pepsi stock is down because consumers seem to be cutting back on discretionary purchases. And they seem to finally be pushing back on Pepsi's price increases in recent years. But the company managed to eke out top-line growth in 2024, as well as bottom-line gains, nonetheless. And it will likely do so again in 2025. In short, things aren't as bad as they seem, and investors can still have confidence in Pepsi.

As the final icing on the cake, Pepsi's dividend yield is quickly approaching 4%. That's an all-time high, which is good for those who invest today. Keep in mind that this company has annually increased its dividend for 53 consecutive years, making it an elite Dividend King.

2. Ulta Beauty

While not as iconic as Pepsi, Ulta Beauty is still quite an establishment. There are more than 1,400 locations providing cosmetic products, and many offer salon services as well.

And in the face of economic uncertainty, investors should remember that this is a recession-resistant space. Consider that Ulta Beauty's same-store sales increased in 2008, 2009, and 2010 -- years that were the heart of the Great Recession.

Ulta Beauty expects some same-store-sales growth in 2025, but guidance is so modest that investors aren't impressed. The stock is down nearly 40%. And it's not just because growth is slow. Another troubling truth is that its operating margin is slipping. It had a 15% margin in its fiscal 2023, but only expects an 11.8% margin in fiscal 2025.

At Ulta Beauty's size, this means that it expects to earn hundreds of millions of dollars less in operating income than it would otherwise earn if its margin was as good as 2023. That said, the company should still earn $1.3 billion in operating income in this coming year. Considering Ulta is only valued at $16 billion right now, this is a cheap stock.

Ulta Beauty's management regularly takes advantage of its cheap stock price. It buys back shares and has reduced the share count by 18% in the last five years. It expects to buy back $900 million more in 2025 -- well within its means -- which would reduce the share count by an additional 5%. Over the long term, this is great for shareholders who hold tight.

3. PayPal

Finally, PayPal stock last hit an all-time high way back in 2021. It finally outperformed the S&P 500 again in 2024 with a nearly 40% gain. But it followed this up with a disappointing nearly 20% slip to start 2025.

However, it's important to note that much of its drop seems to be because financial technology (fintech) stocks are generally down right now. Just compare returns for PayPal with returns for the Global X FinTech ETF.

PYPL Total Return Level data by YCharts

I believe this strong correlation between PayPal and the Global X FinTech ETF suggests PayPal shares are down because investors have soured on the space. But I also believe that PayPal stock was up in 2024 for legitimately promising reasons.

In recent years, PayPal's transaction margin (a metric for fintech companies similar to gross margin) slipped. In short, the space is competitive, and the company lowered its prices to get business. But under new management, contracts are being renegotiated, and the transaction margin is improving again. That's what investors celebrated in 2024.

There's reason to keep celebrating. PayPal's management expects ongoing improvements through 2027. And this margin improvement should lead to earnings growth as well.

PayPal stock trades at just 17 times earnings, close to the cheapest it's ever been. If the company manages to improve earnings over the next three years as it expects, I believe the stock will have plenty of upsides for investors who buy today.

Pepsi, Ulta Beauty, and PayPal are three big businesses that have historically proven to be quite resilient. The stock market is down, and these three stocks dropped as well. That's good news for investors looking to deploy some cash, and I believe any of these three could be good additions to a portfolio right now.

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*Stock Advisor returns as of March 18, 2025

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal and Ulta Beauty. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.