3 companies to buy in the next stock market crash
It is time to address an important investment problem: “crashes”. They arrive. Quite frequently, in fact. When it comes to stocks, a crash (for our purposes here, when the stock market falls at least 10% from recent highs) occurs almost once a year on average. It is normal for individual stocks to fall even more frequently than this.
But the stocks of blue chip companies are quickly recovering from these downturns. So if your focus is on owning high quality growing companies, stock market crashes are not so much a dreadful event as an opportunity to double your best stocks. These three Motley Fool backers think you should be ready to buy Unity software (NYSE: U), You’re here (NASDAQ: TSLA), and Amazon (NASDAQ: AMZN) when the next episode of market turmoil hits. Here’s why.
An emerging software platform designed for the digital age
Nicholas Rossolillo (Unity software): Unity Software is one of those behind-the-scenes companies that few have heard of, but a growing number of people are consuming products made with Unity without ever realizing it. The company started (and still is) a video game creation platform. But it quickly becomes so much more than that.
You see, Unity was designed to help developers create 3D environments. With ever-improving video game graphics, this 3D sandbox has a clear advantage over older two-dimensional tools. And because Unity is cloud-based software, developers can create and update in real time and collaborate with others. It has wide use beyond gaming, although billions of people around the world download and play a game made with Unity every year. Unity’s 3D authoring software finds use in engineering and architecture, manufacturing, video content editing, and marketing as well. https://unity.com/products
And the company is rapidly developing other ancillary services within its software suite, including application marketing and web content delivery. While the video game industry is what is really shaking things up right now, there is so much potential and options to expand in new directions for this company that management thinks they can increase their numbers. average earnings of 30% per year for the foreseeable future.
It also has a stellar track record to support its ambitions, with $ 1.65 billion in cash and cash equivalents, and no debt on the books at the end of March 2021. The next time the stock market takes a header and inevitably takes Unity action up a notch, grab some shares of this leading 3D virtual environment creation engine.
Extreme volatility triggers extreme opportunities
Anders Bylund (Tesla): If history has taught us anything, we have learned that volatile stocks like Tesla tend to amplify everything that happens in the wider market. They soar when times are good, and they often crash far too hard when the business environment tightens. For example, take a look at the initial COVID-19 panic. the S&P 500 the stock market index fell 29% in one month. Tesla’s stock fell 61% over the same period:
Tesla’s rebound from that dark well has also been spectacular. The stock has gained 750% since this market bottom in March 2020, easily beating the 76% return of the S&P 500. Tesla’s volatility has skyrocketed since the onset of the coronavirus crisis, as shown by the beta value on one year from an already high level of 2.0 to a high of 4.6. As a reminder, a beta value of 1.0 means that the stock is moving in tandem with the broader market. Higher values indicate a greater magnitude of magnification of broad market price trends, and Tesla’s value is extreme.
CEO Elon Musk isn’t afraid of Tesla’s explosive and unpredictable nature. He often shakes the pot himself by tying Tesla’s fortune to the mercurial value of the main cryptocurrency. Bitcoin (CRYPTO: BTC). A constant stream of tweets from Musk has proven to be effective in altering Bitcoin prices in the short term. Time will tell if his social media adventures will have a permanent effect on the cryptocurrency market.
More specifically, Tesla has invested $ 1.5 billion in Bitcoin tokens. Tesla and Musk have serious skins in the cryptocurrency game, which sets the stock up for even more volatility as the Bitcoin market continues to regularly generate wild swings. It’s not very risky, mind you. Tesla’s Bitcoin holdings represent just 0.2% of the company’s current market cap. The perception of Musk mocking fates with a large Bitcoin investment is only loosely based on reality.
I wouldn’t be surprised to see Tesla shares plunge deeply into the next wholesale market correction again, regardless of the reason for this crash. At the same time, Tesla’s actual business is doing very well and the company has been successful in shifting the entire automotive market towards electric vehicles. Buy at the bottom of the wave and watch Tesla experience another spectacular bounce. Don’t call it a comeback because the business will never really be gone.
The “whole store” resists the recession and could take off again
Billy Duberstein (Amazon): It’s not exactly an off-the-radar choice, but Amazon.com is a strong buy today, even if the economy were to fall into recession.
Some find it hard to characterize Amazon because it has its tentacles across so many industries, from e-commerce and streaming video, to groceries, cloud computing, and digital advertising.
But I tend to think of Amazon as a Infrastructure business. In its core e-commerce segment, Amazon has grown its integrated website, network of fulfillment centers, and internal and partner delivery fleets to deliver goods quickly and affordably. In cloud computing, Amazon has built a secure global data center and the technical infrastructure to host the computer and storage needs of corporate customers around the world, from start-ups to the world’s largest corporations.
This vital infrastructure certainly came in handy during the COVID-19 recession, but would also be the foundation of the economy during any sort of future economic downturn. While Amazon’s results are linked to consumption patterns, a large portion of that consumption is for consumer staples and essentials. The Amazon Prime membership is a fantastic deal for customers, and I don’t think many would cancel even when the going got tough.
One particularly exciting new innovation is the Amazon Fresh grocery store, built with cashier-less AI technology. Amazon has rolled out several over the past year and just opened another new full-service grocery store with cashierless technology in Bellevue, Washington last week. Cashierless technology has the potential to reduce costs and increase throughput in the low-margin grocery industry, an industry that is generally recession-proof. Amazon has also discussed licensing the technology to other retailers, which would lower their labor costs.
On top of this big picture, Amazon has the obvious financial strength to withstand any downturn, with over $ 73 billion in cash on balance sheet against just $ 32 billion in debt. In fact, because of this strength, Amazon tends to capitalize on the weakness of smaller competitors in times of downturn. And given Amazon’s consistently high pace of innovation, its secular growth position should be enough to overcome any cyclical weakness in the economy.
Amazon stock is still just below all-time highs set last summer, with the stock essentially leveling off for most of the year. That could set this defensive title up for its next big move upward.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.