Who is ready for a stock market crash? 3 stocks to buy put your fist back when this happens
II’m about to say something that some of you might find disturbing, but you have to hear it: A stock market crash is inevitable.
Although this is a statement that might be hard to believe given the benchmark’s 95% rebound S&P 500 (SNPINDEX: ^ GSPC) Since reaching its lowest pandemic level, history conclusively shows that crashes and corrections are part of the normal investment cycle and the price of admission to one of the biggest creators of wealth in the world. the planet.
Image source: Getty Images.
The stars align for a stock market crash
To be clear, there are a lot of aspects of stock market crashes that we just aren’t going to know about ahead of time. Often times, we won’t know the catalyst for a significant bearish move until after the fact. Additionally, we will never know how long a crash / fix will last, or how pronounced the decline will ultimately be. But with 38 double-digit percentages of declines below the S&P 500 belt over the past 71 years, they’re certainly more common than most people realize.
If you are looking for stock market crash catalysts, look no further than how stocks have reacted to past bear markets. With the exception of the coronavirus crash, the previous eight bear markets (dating back to 1960) have seen at least double-digit percentage declines within three years of bottoming out. Or, in simpler English, bouncing off a bear market tends to be a bumpy ride, not the straight upward stretch we’ve seen in the last 15+ months.
Another piece of history not on the market side is its valuation. While valuation alone shouldn’t be the basis for a sell-off, bad things have happened anytime the S&P 500 Shiller’s price-to-earnings (P / E) ratio has already exceeded and maintained. 30. The Shiller P The / E ratio takes into account inflation-adjusted earnings over the past 10 years.
On Monday, July 12, the S&P 500’s Shiller P / E hit 38.5, marking a nearly two-decade high. The previous four instances where the Shiller P / E exceeded 30 caused the S&P 500 to fall by at least 20%.
Other factors to consider here are rapidly rising inflation rates, which could push the Federal Reserve to act sooner than expected, and the spread of the delta variant of the coronavirus, which could stop the economy from reopening in various parts of the United States and the world.
We might not like the idea of a stock market crash, but it’s time to prepare for the likelihood of a collapse happening.
Buy these stocks by hand when a stock market crash occurs
Of course, if you are a long-term investor, a stock market crash is nothing to worry about. Rather, it’s the perfect excuse for shopping. This is because every crash and fix throughout history has finally been put in the mirror by a bull market rally. If you buy high quality companies when they dive in a crash, you have a very good chance of building significant wealth.
When the next stock market crash hits, the next three stocks can be bought with confidence by investors.
Image source: Getty Images.
The first top-notch title you can gobble up during a stock market crash or strong correction is Developer of Robot-Assisted Surgical Systems. Intuitive surgery (NASDAQ: ISRG). I can speak from experience, seeing how I opened a position in Intuitive Surgical during the coronavirus crash of March 2020.
What will likely draw your attention to Intuitive Surgical is how dominant this company is in the health sector. By March, it had installed 6,142 of its da Vinci surgical systems in hospitals and surgical centers around the world. It may not sound like a lot, but it is many more systems than its competitors were able to install on a combined basis.
Between the high cost of these systems ($ 0.5 to $ 2.5 million) and the hours spent training surgeons, Intuitive Surgical often clings to its clients for an exceptionally long period of time. In other words, there is virtually no concern about the customer churn rate.
Another thing to consider here is that Intuitive Surgical is operating (pardon the pun) in a highly defensive sector. Since we don’t have a choice of when we get sick or what diseases we develop, there is a constant need for surgeries in any economic environment.
But what really sells Intuitive Surgical as a stock to own is its operating margin, which is built to keep improving over time. Throughout the 2000s, most of the company’s sales came from its expensive but complex da Vinci systems. However, the bulk of its revenue today comes from the sale of instruments and accessories with each procedure, as well as from the maintenance of its systems. These are operating segments with considerably higher margins. So, as more systems are installed, these higher margin segments will ensure that profit growth will continue to outpace sales growth.
Image source: Pinterest.
Another obvious buy in the next stock market crash is the social media platform Pinterest (NYSE: PINS).
Even though Pinterest was a clear beneficiary of the pandemic – i.e. people stuck in their homes and looking for entertainment / engagement – it showed long before 2020 that it was gaining momentum. In the three years leading up to the pandemic, the monthly growth in active users (MAU) of Pinterest increased by an average of 30% per year. At the end of June, it wouldn’t be surprising to see Pinterest surpass half a billion monthly active users.
While US users generate the juiciest Average Revenue Per User (ARPU), the future of the business really rests with people who sign up internationally. In the quarter ended March, 103 million of the 111 million UMA earned came from international markets. Connecting 380 million MAU (and growing) from outside the United States will improve the company’s advertising pricing power and increase ARPU significantly throughout the decade.
Another thing to consider is that Pinterest offers one of the most targeted user platforms in the world. Their MAUs willingly share the things, places and services that interest them, which makes it very easy for Pinterest to connect them with merchants who can fulfill their desires. This setup gives Pinterest a very good chance of becoming a serious player in ecommerce.
Image source: Getty Images.
A third stock that you can buy by hand during the next crash or strong correction is Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), the parent company of Google and YouTube.
The answer to “Why Alphabet?” Can be summed up by looking at its dominant Internet research platform and taking a closer look at its rapidly growing ancillary operations.
For example, GlobalStats estimates Google’s share of the global internet search market at 92.5% in June 2021, and a relatively constant 91% to 93% over the past year. With this kind of search dominance, it’s no wonder that companies pay a lot of money to get the right to get their message across in front of as many targeted eyeballs as possible. With the exception of the height of the coronavirus recession, Google’s advertising revenue for internet searches is steadily increasing by a double-digit percentage.
But the alphabet is not a one-ride pony. The company’s streaming content platform, YouTube, is one of the top three most-visited social sites in the world. YouTube’s advertising revenue jumped 49% in the first quarter, with annual revenue reaching $ 24 billion. Not too bad considering that Google acquired YouTube for $ 1.65 billion in 2006.
The company’s cloud infrastructure segment (Google Cloud) is also growing like a weed. The cloud controlled around 7% of global cloud infrastructure spending in the first quarter of 2021, according to Canalys. Since cloud margins are significantly higher than advertising margins, the cloud will play a key role in increasing operating cash flow by the middle of the decade.
10 stocks we like better than Pinterest
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Suzanne Frey, an executive at Alphabet, is a member of the board of directors of The Motley Fool. Sean williams owns shares of Intuitive Surgical and Pinterest. The Motley Fool owns shares and recommends Alphabet (A shares), Alphabet (C shares), Intuitive Surgical and Pinterest. The Motley Fool recommends the following options: $ 580 long calls in January 2022 on Intuitive Surgical and $ 600 short calls in January 2022 on Intuitive Surgical. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.