It’s been the most volatile start to a month in over a decade, and the current market correction of 34% is now nearly on par with the carnage we saw in 1987. While the 2008 bear market delivered a much sharper blow to the overall markets, there was plenty of warning before it reared its head. The current bear market, however, more resembles 1987, as there was little to no warning except a high dose of irrational exuberance. Fortunately, with panic comes opportunity, and we certainly don’t get a 30% plus correction in the markets every year. Therefore, for investors that can keep their head when everyone else is losing theirs, I believe we finally have some opportunities showing up.

(Source: TC2000.com)

It certainly takes a good chunk of courage to go in and buy the market when it’s looking its ugliest, but fortunately, there’s no need to catch a falling knife to make money in the markets. Instead, I prefer to look at the stocks with the strongest earnings growth that have seen less technical damage than the overall market. Two names are clear stand-outs in this category, and they are Netflix (NFLX) and Apple (AAPL). Not only do both names expect to grow annual earnings per share [EPS] by 40% or more by FY-2022, but they’ve also held up relatively well during this sell-off. This suggests that smart money might be accumulating these names, while the oil stocks, travel stocks, banks, and retail get thrown into the waste-bin. Let’s take a closer look below:

Beginning with AAPL’s earnings, we can see a strong earnings trend below, with the company managing to grow annual EPS from $6.45 in FY-2014 to $11.89 last year, nearly 90% growth over the five years. While AAPL’s were roughly flat last year over FY-2018 levels ($11.89 vs. $11.91), it’s important to note that the forward outlook is what funds are more interested in. When it comes to FY-2020, FY-2021, and FY-2022 estimates for Apple, we see a powerful trend on the horizon, with annual EPS expected to grow from $11.89 in FY-2019 to $17.40 in FY-2022. More importantly, this growth is expected to be relatively consistent with low double-digit growth in FY-2020, mid-double-digit growth in FY-2021, and more double-digit growth expected in FY-2022. For investors looking past the next 3-6 months of Coronavirus filled headlines, and a potential recession, Apple offers a tremendous opportunity if this sell-off continues. At a current share price of $240.00, the company trades at under 14x FY-2022 earnings, with a 1.4% dividend yield, a reasonable valuation for a company transitioning back to double-digit EPS growth.

(Source: YCharts.com, Author’s Chart)

If we move over to AAPL’s long-term chart below, we can see that this sharp 30% decline in the overall market hasn’t done much to damage the stock. Currently, the stock is pulling back towards a nearly 20-year uptrend line off of the 2001-2003 bear market lows, with uptrend line support coming in at the $220.00 area. Therefore, as long as the bulls can play defense at $215.00 or higher, I see no reason to panic with this current sell-off. The ideal setup would be a drop to $230.00 or lower, and this would give the stock a dividend yield of closer to 1.50%, and the stock would be trading at closer to 13x FY-2022 EPS. While I am not long the stock currently, I am watching it closely for a potential bottom.

(Source: TC2000.com)

Moving over to Netflix, the company’s growth is unrivaled among the FAANG stocks, with a near parabolic earnings trend in place off of the FY-2014 to FY-2017 range. The company’s investments in technology and content in this period have paid off in spades, as NFLX has managed to grow annual EPS from $0.43 to $2.68 in just two years, an increase of over 500%. If we look ahead to FY-2020, the company is expected to see massive annual EPS growth, with current estimates sitting at $4.13. If we look forward further to FY-2022, estimates are sitting at $8.58. This figure is more than 200% above FY-2019 EPS of $2.68 and shows the massive growth ahead for the company. Most importantly, the company is not affected by a recession or the current virus, as it comes at a low price point and thrives during a period of social distancing. Based on the current share price of $320.00, the stock is trading at 37x FY-2022 annual EPS, a more than reasonable valuation for a company expected to triple annual EPS in the next three years.

(Source: YCharts.com, Author’s Chart)

If we take a look at NFLX’s chart, we can also see that the stock is holding up quite well, still trading in a multi-year range. The yellow line in the chart below shows the Dow Jones Industrial Index, and it has broken to new multi-year lows, while Netflix is actually above its 2019 low. This is a positive sign, as it shows that the stock is outperforming the market.

(Source: TC2000.com)

While I see no reason to rush in and buy with both hands at current levels, both Apple and Netflix are two attractive ideas during this market correction, and I may begin to nibble on either of them as early as this week. I am purposely keeping position sizes small to account for volatility, but both names are quite attractive near their current share prices for small positions. However, I will be using stops to protect my risk if I do enter. The market may be turbulent, but the key during the worst of times is to find the best of companies. NFLX and AAPL are some of the best ideas I’ve come across, and investors should keep them on their watch-lists.

AAPL shares rose $0.02 (+0.01%) in after-hours trading Thursday. Year-to-date, AAPL has declined -16.44%, versus a -25.27% rise in the benchmark S&P 500 index during the same period.

About the Author: Taylor Dart

Taylor has over a decade of investing experience, with a special focus on the precious metals sector. In addition to working with ETFDailyNews, he is a prominent writer on Seeking Alpha. Learn more about Taylor’s background, along with links to his most recent articles. More...

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