3 Magnificent S&P 500 Stocks Down Between 16% and 21% to Buy on the Dip

And just like that, the S&P 500 index is nearing all-time highs again.

As unlikely as this may have seemed two months ago, the stock market dismissed numerous fears and pushed many growth stocks to new highs. However, not all S&P 500 stocks took part in this recovery. This notion is particularly true for many "steady Eddie" compounders in the index.

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Today, we'll look at three of these magnificent compounders down between 16% and 21% and discuss why each looks like an excellent buy over the long term.

1. Copart

Copart (NASDAQ: CPRT) owns roughly 250 salvage yards across North America and processes the sale of over 3 million (mostly) totaled vehicles on its online auction platform. The company generates 81% of its sales from car insurers, who use Copart's platform to sell totaled vehicles to dismantlers, exporters, car repair shops, dealerships, or the general public.

The Texas-based company holds nearly half of the market share in this salvage vehicle niche and operates in a duopoly alongside RB Global. However, whereas RB Global leases the land for most of its salvage yards, Copart owns almost all of its property, giving the latter a significant advantage in profitability.

Furthermore, the company benefits from NIMBY (not in my backyard) feelings from citizens who don't want to see more junkyards in their towns. This sentiment, combined with Copart's nationwide network of locations and top-tier profitability, provides the company with a wide moat. As result, Copart has been a 330-bagger since its initial public offering in 1994.

With this success, though, comes a lofty valuation. And in the company's last quarter, Copart slightly missed analysts' expectations, prompting a 21% sell-off. Following this decline, however, the company trades at a more reasonable 27 times cash from operations -- a mark it hadn't seen in over two years.

Ultimately, Copart is well-positioned to thrive over the long term, in my opinion. As cars become increasingly complex and more technologically advanced, their repair costs will also continue to rise. With insurers more likely to deem a car "totaled" after an accident -- rather than face these ballooning repair costs -- Copart stands to benefit, just as it has for over three decades.

2. Tractor Supply

Much like Copart, rural lifestyle retailer Tractor Supply Company (NASDAQ: TSCO) went public in 1994 and has rewarded investors by becoming a 219-bagger since then. Home to around 2,300 Tractor Supply stores and 206 Petsense locations, the company is a nationwide chain catering to an often-overlooked rural segment of the population.

With the company focused solely on serving these communities, it is perhaps no surprise that it has a massive and loyal customer base. Its Neighbor's Rewards Club has grown from 15 million members in 2019 to nearly 40 million today. What's truly remarkable about these members, however, is that they account for a stunning 80% of Tractor Supply's sales.

This ability to turn new guests into repeat purchasers highlights the company's value proposition to members and establishes a "sticky" base of steady sales. Furthermore, with most of Tractor Supply's revenue coming from CUE (consumable, usable, or edible) categories, the company generates frequent visits from members. The repeat nature of these sales makes Tractor Supply less volatile than discretionary retail stocks, which are more susceptible to fluctuations in consumer confidence.

Despite these promising attributes, Tractor Supply's shares have slid 16% over the last year as its sales growth slowed to 2% amid a challenging environment.

Ultimately, though, if we zoom out and look at the longer term, I believe Tractor Supply offers numerous market-beating catalysts, including:

• Management's goal to grow its store count to 3,200
• Reaching the 55 million-member mark by 2029
• Growth in its nascent direct sales and pet and animal prescription businesses
• The expansion of its private label products and retail media operations
• Management's goal to reduce its share count by 1% to 2% annually
• A well-funded and growing dividend yielding around 1.5%

Trading at 25 times earnings, Tractor Supply is a top-tier operator poised to continue dominating its niche -- all at a sub-market valuation.

Image Source: Getty Images.

3. Motorola Solutions

Public safety leader Motorola Solutions (NYSE: MSI) not only offers multiple layers of safety to its customers, but also to its investors. Motorola operates via three product categories:

• Land mobile radio (LMR) communications: These 13,000 LMR networks across the globe are mission-critical communication infrastructure, whether it is a firefighter's walkie-talkie or the networks used if cell towers go down in a natural disaster.
• Video security and access control equipment: Over 5 million fixed cameras with artificial intelligence analytics deployed, alongside mobile video solutions such as body cameras and automated license plate readers.
• Command center solutions: Motorola's software is used by 60% of the 911 call centers in the United States for call routing and handling, dispatch and records, and general workflow collaboration within the department.

Thanks to the essential nature of its products and its leadership in each niche, Motorola has a wide moat around its business. Powered by this moat and the company's strong cash generation, Motorola has been a 10-bagger in the last 15 years.

However, after the company's revenue growth slowed to 6% over the last two quarters while management issued softer guidance for the year, its shares dropped 19% from their highs. I believe this sell-off could be overdone, though, with Motorola now trading at a more palatable 31 times free cash flow.

The primary reason I'm bullish on the company's long-term potential is its excellent track record as a serial acquirer, having completed 30 acquisitions for approximately $7 billion since 2015. Maintaining a lofty cash return on invested capital of 31%, Motorola excels at generating substantial returns from the debt and equity it uses to make its purchases.

Now eyeing a $4.4 billion takeout of Silvus Technologies and its mobile ad-hoc networks, Motorola looks to build upon its leading communications operations and continue beating the market as it goes.

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Josh Kohn-Lindquist has positions in Copart. The Motley Fool has positions in and recommends Copart, Home Depot, and Tractor Supply. The Motley Fool recommends the following options: short July 2025 $54 calls on Tractor Supply. The Motley Fool has a disclosure policy.