History Says the Best Time to Buy Stocks May Be Coming

Equities haven't performed well so far in 2025. President Donald Trump's trade wars are creating significant uncertainty, while many fear that a recession might be coming -- something else that could send the stock market in the wrong direction. The Nasdaq Composite and S&P 500 have both recently hit correction territory -- defined as a 10% drop from their most recent highs. What will happen next? Predicting these things is hard, but a bear market is a real possibility.

And if it does happen, it will create incredible opportunities for savvy investors. Let's see what history says about buying stocks during bear markets.

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Be greedy when others are fearful

A bear market is a 20% drop (or more) from an index's most recent high. So, correction territory gets us halfway there. Though it can be challenging to remain calm when equities fall by that much, the historical record shows that investing in stocks during a bear market is an excellent move. Let's take one recent example: the downturn that happened in 2020 due to pandemic-related disruptions. The Nasdaq and the S&P 500 have more than doubled since they hit rock bottom in early April 2020 -- that means they have generated a compound annual growth rate of greater than 15% in this period, well above the market's long-term historical return.

^IXIC data by YCharts

Let's now turn to the bear market that happened in 2022. Since that year closed, both indexes have been on a tear.

^IXIC data by YCharts

The story is generally the same for most bear markets. While it's impossible to time the market -- no one knows when equities will bottom out -- investing in great stocks in bad times is a great way to apply one of Warren Buffett's pieces of investing advice: Be greedy when others are fearful. In other words, there is no reason to fear downturns or market volatility. They are part of the process. Instead, when a bear market hits, it's a great time to start shopping for great stocks.

Let's consider one company to invest in if equities continue their descent throughout the year (or even if they don't).

One top stock to buy in a bear market

Shares of the e-commerce giant Amazon (NASDAQ: AMZN) are already down by 13% this year, partly due to marketwide volatility. The stock remains an excellent pick for long-term investors, though. Amazon is a leader in several industries with significant growth prospects. It is the top player in the U.S. e-commerce market and the global cloud computing industry. These days, Amazon's cloud business -- Amazon Web Services (AWS) -- and its advertising unit are its biggest top-line growth drivers. Amazon's key metrics have been growing at a good clip.

AMZN Revenue (Quarterly) data by YCharts

Within AWS, Amazon offers a range of artificial intelligence (AI)-related services, the demand for which has soared in the past two years. We are still in the early innings of the adoption of new AI applications. Thanks to its impeccable innovative abilities and switching costs, Amazon should remain a leader in this niche for a while. The company's advertising business will only get stronger, too. Amazon's e-commerce website is one of the most visited worldwide and benefits from the network effect: The more merchants it has, the more it will attract consumers, and vice versa.

Further, Amazon continues to invest in other key growth avenues. Amazon Pharmacy is somehow eating into the market share of some well-established leaders in the field, such as Walgreens Boots Alliance. That's no small feat; it is partly due to Amazon making things more convenient for people -- it's much easier to get drugs delivered than to have to wait in line, sometimes for a while, to acquire them. Amazon's success in this area is also likely due to its estimated base of over 200 million Prime members.

This large ecosystem grants the company multiple monetization opportunities. So, to recap, Amazon generates consistent revenue, earnings, and cash flow, is a leader in industries ripe for growth, and has a strong moat. If there is one knock against the stock, it might be its valuation. Amazon's forward price-to-earnings (P/E) ratio stands at about 30, even after this year's pullback. The average forward P/E for the consumer discretionary sector to which it belongs is 25.

While Amazon is worth the premium, considering its position in this industry, the stock would become even more attractive in a full-blown bear market. Again, no one can predict with certainty whether that will happen sometime this year, and even if it doesn't, Amazon stock is a buy. But if a bear market emerges, Amazon will be an even stronger buy.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Prosper Junior Bakiny has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.