Despite record equity volatility during this year’s trading, the S&P 500 Index remains close to a record level. There are plenty of catalysts that could trigger another round of sell-offs, but investors should view the upcoming correction as an opportunity to build positions in high-quality companies.
We asked three Motley Fool contributors to identify the best actions you can buy the next time turmoil hits the market. Read on to see why they’re thinking of adding Cloudy (NYSE:NET), Amazon (NASDAQ:AMZN), and Qualcomm (NASDAQ: QCOM) in a stock market crash will lead to stellar returns.
One of the hottest cybersecurity stocks in the world
keith noonan (Cloud Flare): I started buying Cloudflare stock in June as cybersecurity is set to see a huge surge in demand over the next decade, and the company’s leadership positions in security and broadcast services web-based content providers indicate huge potential for growth. The belief that Cloudflare’s strengths in these categories would create foundations for the launch of new services was another central part of my bullish thesis.
On October 12, the web specialist announced and published Cloud Flare One — a comprehensive software service designed for businesses seeking improved content delivery speeds and security for devices, applications and networks. The company was quicker in launching a major new service than many analysts and industry watchers expected, and the stock’s recent gains have me wishing I had bought more aggressively — and wait for the next big buying opportunity.
The stock soared around 40% in October alone thanks to the new software offering. Cloudflare has been the best performing stock in my portfolio since I initiated a position about four months ago, with my stocks nearly doubling in value.
The company now has a market capitalization of around $18 billion and is valued at around 44 times expected sales for this year. From a long-term perspective, I still think the stock offers a lot of upside potential at current prices. However, the company’s high price-to-sales ratio could help pave the way for a substantial pullback in the event of turmoil for the broader market, and Cloudflare will be high on my buy list next time stocks will be on sale.
The titan of e-commerce and cloud computing
Joe Tenebruso (Amazon): There’s never been a bad time to buy Amazon stock. But there have certainly been some amazing times to buy the online retail giant’s stock, many of which have taken place during stock market crashes. The next market drop will likely present another such opportunity – which I would recommend investors make the most of.
Amazon tends to take advantage of economic downturns, while its weaker competitors are left behind. This trend has become even more pronounced during the coronavirus pandemic. Millions of retail businesses have been forced to close due to COVID-related shutdowns and, tragically, many will never reopen. Many of these retail sales will go to online channels, of which Amazon is the largest.
The COVID-19 crisis is also pushing more companies to migrate their operations to the cloud. This is another powerful trend that benefits Amazon. Amazon Web Services (AWS) is a giant in the growing cloud computing infrastructure market, and it is well positioned to take advantage of the industry’s growth.
If Amazon’s share price falls sharply in the next market crash, investors would be wise to consider using the sale as a chance to buy shares of the discounted e-commerce and cloud computing juggernaut. . History has shown this to be a profitable strategy, and it’s likely to continue to be so for the foreseeable future.
Go 5G with this semiconductor stock
will heal (Qualcomm): While there was hype about the latest iPhone version of Apple, the company that makes it all possible has received less attention. 5G phones require a chipset currently made by only one company, Qualcomm.
This chipset is so crucial that Apple settled its lawsuit with Qualcomm before this release. Additionally, Qualcomm managed to overturn a Federal Trade Commission ruling that it was a monopoly. This paves the way for Qualcomm to take advantage of the 5G upgrade cycle.
At the current price of around $130 per share, $1,000 will only buy seven full shares. Nonetheless, Qualcomm is selling for just under 21 times forward earnings. That’s a reasonable valuation for a stock that is expected to increase earnings by 11% this year. However, for a company that is expected to increase its earnings by 64% in 2021, this multiple is very cheap.
This forecast is also in line with the compound annual growth rate of 63% predicted by Grand View Research through 2027. As Apple, Samsung and other manufacturers sell more 5G phones, Qualcomm looks ideally positioned to benefit from this growth. for the coming years. .
Despite this optimistic outlook, Qualcomm faces significant challenges. China accounted for almost half of Qualcomm’s revenue in 2019. This is worrying given the Trump administration’s pressure on the country.
Additionally, in the midst of Apple’s legal retirement, he purchased Intelof the smartphone modem business. If Apple succeeds in developing a competing chipset, it could slow Qualcomm’s revenue and profit growth.
Nevertheless, Qualcomm will remain a compelling story of 5G growth even if the worst fears come true. Given the expected rise in earnings, Qualcomm is unlikely to sell for long at its current valuation.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.