Financial Adviser: 5 Ways to Pick Winning Stocks During a Bear Market—and How to Profit From It
Success in the stock market demands a long-term perspective, because investors face cycles of gains, losses, and unexpected challenges. But during periods of heightened uncertainty—like what we’re facing today—it demands something more: discipline.
Recent developments in the global economy have given investors plenty of reasons to be cautious. The resurgence of tariffs under Donald Trump’s renewed policy push has unsettled global markets. Protectionist measures have once again led to higher costs of imports, disrupted supply chains, and reignited fears of slower global growth.
In the Philippines, the Philippine Stock Exchange Index (PSEi) has shown signs of fatigue, struggling to hold above the 6,300 level. Investor sentiment has deteriorated, and many are understandably cautious.
Seasoned investors, however, know this important truth:
Bear markets, while painful, often reveal the best opportunities—if you know where to look and what to avoid.
They are brutal. They test patience, courage, and discipline. Yet they also offer fertile ground for those prepared to act when others hesitate. History shows that the greatest wealth in stock investing is often built during downturns—not bull markets. If you stay focused, selective, and resilient, today’s fear-driven environment could lay the foundation for your future success.
So how exactly do you find those winning stocks? Here’s a practical, principle-driven guide to help you pick them with confidence when everyone else is running for the exit.
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1| Know How to Invest in Businesses You Understand
In a bear market, clarity is your edge.
When stock prices swing wildly, rumors and fear dominate the headlines. It’s easy to get overwhelmed and make emotional decisions. This is why it’s important to stick to businesses you actually understand.
You don’t need to be a finance expert to become a successful investor. What matters more is having a clear understanding of the basics: knowing what the business actually does, how it generates its revenue, and what factors either drive its growth or threaten to slow it down. Mastering these basics gives you the confidence to make better investment decisions, especially when market conditions turn volatile.
For example, it’s much easier to evaluate Jollibee Foods Corporation or SM Investments—brands that you interact with daily—than a complicated holding firm with dozens of subsidiaries you’ve barely heard of.
When you understand a business deeply, you gain several important advantages. You’re able to distinguish between real threats and temporary setbacks, which helps you avoid making emotional decisions based on short-term noise. You can maintain your conviction even when the share price falls, trusting your knowledge of the company’s fundamentals. Most importantly, you can better assess whether a price decline presents a genuine buying opportunity—or signals a deeper, more serious risk.
Ask yourself: “If this stock drops by 30 percent, will I still be confident enough to hold or even buy more?” If the answer is yes, you’re investing from a position of knowledge—not emotion.
2| Know How to Assess a Company’s Financial Health
Strong fundamentals are non-negotiable in tough markets.
In bull markets, weak balance sheets can be hidden by momentum. But when liquidity dries up, only the fundamentally sound survive.
When assessing a company’s financial health, there are a few key indicators you need to examine closely. Start with revenue growth: check if the company is consistently expanding its sales base year after year, rather than relying on one-off spikes.
Next, look at net income to see if the company remains profitable even during tougher market conditions. Consistent profitability, especially through downturns, is a strong sign of resilience.
Finally, review the company’s debt levels—how much it owes and whether it can comfortably service its obligations. A company with manageable debt is far better positioned to survive and thrive during economic uncertainty. Companies with high debt become especially vulnerable in a rising interest rate environment. Refinancing becomes more expensive, and cash flows get strained.
When assessing a company’s financial health, study at least three years’ worth of financial statements. Look beyond the most recent quarter. See if the company has demonstrated resilience through past slowdowns.
As you study a company’s financial strength, there are key ratios you should pay attention to. The debt-to-equity ratio is one of the first—generally, the lower it is, the safer the company’s financial position. Another important measure is the current ratio, which shows whether the company can meet its short-term obligations; a ratio above 1.2 is typically considered healthy. Lastly, take a close look at the interest coverage ratio. A higher figure here indicates that the company earns enough to comfortably meet its debt payments, a critical factor during times of economic stress.
Financially strong companies don’t just survive downturns—they often dominate weaker rivals and gain market share in the recovery.
3| Know How to Read Cash Flow—Real Cash, Not Just Paper Profits
Earnings reports can flatter. Cash flow reveals the truth.
Some companies can report attractive earnings yet generate little real cash. That’s why you must look beyond the Income Statement and check the Cash Flow Statement, specifically cash from operations.
When reviewing a company’s cash flow, there are two critical areas to focus on. First, check for consistent positive operating cash flow—this means the company is earning real cash from its core business activities, not simply from selling assets or taking on new debt. Second, consider the level of capital expenditure pressure. Companies that don’t require constant, heavy reinvestment just to keep their operations running tend to be more flexible and financially resilient.
A company that consistently generates healthy operating cash flow is in a far stronger position. It can easily pay down debts, invest in new growth opportunities, return money to shareholders through dividends, and most importantly, manage through economic crises without depending on external financing.
Cash-rich companies can withstand market storms without relying on expensive borrowing. Owning these kinds of businesses increases your chances of seeing portfolio gains as others collapse under liquidity pressures.
4| Know How to Spot a Sustainable Advantage
Not all good companies are built to last. Only those with sustainable competitive advantages will lead the next recovery.
Sustainable advantages—often called “moats”—are key to identifying companies that can maintain profitability over the long term. These moats can take many forms. Some companies build strong brand loyalty, like Puregold, securing repeat business from loyal customers.
Others achieve cost leadership, such as Universal Robina Corporation (URC) with its dominance in affordable snack foods, allowing them to outprice competitors. Some enjoy exclusive licenses or franchises, like Meralco’s geographic monopoly in electricity distribution. Meanwhile, others benefit from network effects, where the value of the product or service grows as more people use it.
The deeper the moat, the harder it becomes for competitors to erode a company’s profits or steal its market share. Before investing, it’s important to carefully scrutinize whether a company possesses such enduring advantages. Look for unique assets, regulatory protections, high switching costs that discourage customers from leaving, and superior distribution channels that give the company a logistical edge over rivals.
As you assess a company’s competitive strength, it helps to ask a few critical questions. If a new competitor were to enter the market tomorrow, would they be able to easily steal customers away? And just as important, does the company’s advantage seem durable enough to last five to 10 years or longer? The more confidently you can answer these questions, the more likely you’ve found a business with a true, sustainable moat.
Companies with moats not only survive downturns—they often emerge stronger, scooping up market share from weaker players and becoming even more dominant when conditions improve.
5| Know How to Evaluate if a Stock Is Truly Cheap
Don’t be fooled by low share prices. Value isn’t about the price tag—it’s about what you get for what you pay.
A P2.00 stock can be vastly overpriced if its business is deteriorating. Meanwhile, a P1,000 stock could be an amazing deal if earnings and cash flow are growing steadily.
When evaluating whether a stock is truly a good value, there are a few key metrics you should start with. The Price-to-Earnings (P/E) ratio is a basic yet powerful tool; a low P/E relative to the company’s growth rate can often signal underpricing.
Another important measure is the Price-to-Book (P/B) ratio, which is particularly useful when assessing asset-heavy companies like banks or real estate firms. Dividend yield is also worth examining, as strong companies frequently reward patient investors with regular dividends, which can significantly boost your total returns over time.
For instance, Metrobank (PSE: MBT) is trading at around P73.00 with a P/E ratio of 6.82, while China Bank (PSE: CBC) is priced at approximately P91.50 with a P/E ratio of 9.93. At first glance, Metrobank appears cheaper, but deeper analysis is needed to assess which company offers better value based on future earnings prospects.
While Metrobank may look more attractive on the surface due to its lower valuation, China Bank’s higher return on equity (ROE) and lower financial leverage suggest greater operational efficiency. In this case, paying a slightly higher multiple for stronger balance sheet quality could make sense depending on an investor’s priorities. Valuation should never be your only filter—but it’s a critical one.
Buying good businesses at reasonable valuations sets you up for massive gains when the market turns. It’s the textbook playbook for building wealth through market cycles.
Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice hong@financialadviser.ph or follow him on Twitter @henryong888
