It’s been a historic year thus far for the Nasdaq-100 (QQQ), with the index up 48% heading into year-end, in the average’s best year since 2009 [+53%]. This incredible performance has pushed several stocks into the stratosphere from a valuation standpoint, with the majority of the index quite extended short-term as well.

While an extended market does not preclude further upside, there is a heightened risk for investors starting new positions at current levels, especially with sentiment through the roof heading into year-end. However, it’s always a good idea to have a shopping list prepared for when a correction does show up, and there are two names that both stack up relatively well on valuation even after the massive rally we’ve seen in March.

These two names are Corsair Gaming (CRSR) and Amazon (AMZN), and I believe both would be attractive buys if we could see a sharp correction in Q1.

(Source: TC2000.com)

Amazon and Corsair Gaming have very little in common, with one being an online retail juggernaut with a trillion-dollar valuation, and the latter being a mid-cap computer hardware and accessories company. However, both companies have industry-leading earnings growth, and both are benefiting from massive tailwinds from a big picture standpoint. In AMZN’s case, the global pandemic has only accelerated the shift to online shopping, with several stores remaining closed even as we head into the new year and many shoppers still not keen to head out to shop for anything other than essentials.

Meanwhile, CRSR is seeing two significant tailwinds, with the first being E-Sports and the latter being Live-Streaming. The company’s high-end computer products and accessories have been in high demand this year, with streaming gaining more traction, while gaming has hit a multi-year high with many stuck at home and bored. While gaming is set to cool off once the world returns to normal, live streaming doesn’t look like it’s going anywhere. Let’s take a closer look at the two companies below:

Beginning with Amazon, the company needs no introduction, with the online retail continuing to steam-roll its competition and taking a bite out of market share in several different industries. As shown below, Amazon is set to see massive annual EPS growth this year of over 50% ($34.90 vs. $23.01) based on estimates and is expected to follow this up with another year of 30% growth next year. These are incredible growth figures for a trillion-dollar company, dwarfing its peers’ growth rates like Apple (AAPL) and Microsoft (MSFT).

(Source: YCharts.com, Author’s Chart)

The continued growth has been driven by a massive recurring revenue base with Prime, with renewal rates that actually improved year-over-year for its 150 million members. Meanwhile, third-party sellers on Amazon continue to grow, with $3.5BB in revenue for third-party sellers alone during two days for Prime this year, translating to 60% year-over-year growth. Finally, Amazon Web Services continues to be the market leader with strong double-digit growth rates.

While AMZN has had a strong run this year, the stock has paused for nearly six months, and this has allowed the stock’s valuation to play catch-up. In fact, while the stock might look expensive based on just $34.90 in annual EPS in FY2020 and a P/E of nearly 100, it’s trading at a very reasonable 50x earnings based on estimates for $63.60~ in annual EPS for FY2022. Meanwhile, the stock looks to be setting up for another potential buy-point within its long-term trend, with the stock mirroring a similar setup from nearly six years ago.

This setup was a breakout from a multi-year base followed by a gradual ascent over several years, with Amazon being in the early innings of this current breakout. While there’s no guarantee that the stock will perform as it did following its 2015 breakout, the 13-month moving average has typically been a great spot to buy the stock following these major breakouts. This moving average should catch up to price near $3,000 by February, so I believe any dips to $3,025 or lower would be a low-risk area to add exposure to the stock. This would also drop AMZN to below 50x FY2022 annual EPS estimates, which has typically been a great time to add exposure to the stock.

(Source: TC2000.com)

The second name worth keeping an eye on is Corsair Gaming, a mid-cap gaming company that sells products ranging from camera links, studio accessories, and headsets to fans, CPU coolers to capture cards. The company just came off a strong Q3 with sales of $457MM, up 61% year-over-year, translating to a 300-basis point improvement sequentially and a third consecutive quarter of acceleration in sales growth. Meanwhile, Corsair saw gross margins surge to 28%, a 680 basis-point improvement year-over-year.

This exceptional growth has been driven by lower promotional activities due to insatiable demand, as well as the sale of higher-margin SCUF Gaming products and streaming gear.

(Source: Company Presentation)

The holy grail for exponential earnings growth is accelerating revenue growth rates coupled with gross margin expansion, and in Corsair Gaming’s case, the company meets both criteria. As shown below, annual EPS has essentially gone nowhere for three years now, but we’re on track to see an earnings breakout this year.

This is because annual EPS is projected to come in at $1.25, a new multi-year high relative to the prior high of $1.13 in FY2017. Earnings breakouts are typically very bullish developments, and stocks often follow earnings breakouts to new highs. While FY2021 is not expected to see much growth, this is nothing to be alarmed about as the company will be up against tough comps year-over-year.

(Source: YCharts.com, Author’s Chart)

Some investors might be worried that vaccinations in Western countries and a return to a more normal life will cool down demand for Corsair Gaming’s products, given that many gamers will curtail their time spent online. While this is undoubtedly true, Corsair has the tailwind of E-Sports working for it globally.

Besides, the company also has a tailwind in Live Streaming, with streaming becoming much more popular during the global pandemic with new microphones, headsets, cameras, and upgraded home offices being a must for at-home work and consumer’s own businesses. In fact, video-blogging and interactive fitness were already here before COVID-19 and are not going anywhere, so Corsair should continue to benefit as the market leader.

(Source: TC2000.com)

Having said that, the company is certainly up against tough year-over-year comps, so a consolidation for the stock would not be surprising. Therefore, I don’t see any rush to rush into the stock here. However, if CRSR were to pull back below $31.00, I would view this as a low-risk area to start a position in the stock. This would also improve the valuation, with CRSR trading at just 25x FY2021 annual EPS estimates.

With the QQQ set to record one of its best years in a decade, I don’t see any reason to be rushing to add new exposure to equities at current levels. However, CRSR and AMZN look to have a long runway for growth over the next few years, and I would expect sharp pullbacks in these stocks to represent low-risk buying opportunities. Therefore, for investors looking to build a shopping list if we do see a deep correction in the market, these are names worth focusing on.

Disclosure: I am long AMZN

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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CRSR shares were trading at $36.17 per share on Thursday morning, down $0.72 (-1.95%). Year-to-date, CRSR has gained 153.82%, versus a 17.62% 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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