The stock market continues to swing wildly in 2020. In February, soon after COVID-19 began to spread around the world, the equity markets fell by 35% in just over a month. The pandemic decimated multiple sectors and shaved off significant investor wealth.
However, the snap-back rally witnessed since March was equally surprising, as indexes were trading at record highs by September. Right now, the S&P 500 is 5% below its record high, after losing 1.9% yesterday.
The volatility is far from over, especially now that COVID-19 cases are on the rise once again. This suggests that economic lockdowns may be reimposed, which could create significant challenges for multiple industries. Companies in the airline, tourism, hotels, and energy sectors are already trading at multi-year lows.
Is a market crash inevitable?
We can see that the stock market is not in sync with the economy, given subdued consumer spending and falling GDP figures. So, a market crash is a real possibility given multiple structural issues impacting global economies.
Yet, savvy investors often look at such market sell-offs as buying opportunities. In the last few decades, the S&P 500 has undergone a correction (which is a decline of more than 10%) once every two years on average. However, every time it has rebounded and made new highs.
Today we’re going to look at three stocks that you should consider buying if the market crashes.
An e-commerce player
Companies in the e-commerce segment have overperformed the market in 2020. The pandemic has acted as a tailwind for online platforms as consumer behavior has changed drastically and the accelerated shift towards e-commerce shopping will continue to drive top-line growth in the upcoming decade.
One stock that has the potential to generate explosive returns is Etsy (ETSY), an online marketplace for handmade products. Over the years, Etsy has improved its search functions and usability that has increased the number of buyers and sellers on its platform.
In the second quarter, Etsy grew its active buyers by 41% while active sellers were up 35% year-over-year. The company’s sales were up 137% while gross transaction volume soared 147% in Q2. Etsy stock has already tripled year-to-date and is valued at a market cap of $17.8 billion. This means the stock is trading at a forward price to earnings multiple of 72x and a price to sales multiple of 12x which is reasonable given its growth rates and expanding addressable markets.
Analysts tracking Etsy expect earnings to grow by 57% annually in the next five years.
A health-tech giant
Another company that has delivered on its promise amid the coronavirus chaos is Teladoc (TDOC). Shares of Teladoc are up 153% in 2020 valuing the company at a market cap of $17.6 billion. The company provides virtual healthcare services and its platform allows patients and healthcare professionals to have an integrated experience via mobile, web as well as phone-based access points.
The long-term prospects for Teladoc remain inspiring given the annual addressable telehealth market is close to $75 billion. Comparatively, Teladoc is expected to report sales of $990.46 million in 2020 and $1.4 billion in 2021.
The demand for telehealth services has experienced a massive surge amid the pandemic. In the first six months of 2019, Teladoc sales rose 63% year-over-year to $422 million. Further, Teladoc’s acquisition of Livongo Health will close shortly which will be another driver for revenue growth.
In Q2, Livongo’s sales were up 119% and the company is focused on chronic conditions which makes up the majority of the healthcare spending in the U.S. Teladoc is also well diversified and derives 20% of revenue from international markets.
Global telemedicine spending is forecast to reach $185 billion by 2026, indicating an annual growth rate of almost 24%.
A recession-proof stock
The final stock on this list is NextEra Energy (NEE), a company that provides utility services and one that is investing heavily in building a robust portfolio of renewable energy assets. The shift to renewable energy will take place at the global level in the upcoming decades, making stocks such as NextEra Energy winning bets for your portfolio.
Utility companies are generally recession-proof as they provide essential services to consumers. In the fiscal third quarter, NextEra’s earnings were up 11% year-over-year with its Energy Resources earnings growing at a healthy 23%.
NextEra’s Energy Resources business is the world’s largest solar and wind power generator with a backlog of 15,000 megawatts which is larger than its current renewable energy capacity.
Analysts expect NextEra’s sales to touch $21 billion in fiscal 2021, up from $19.2 billion in 2019. Further its earnings are forecast to grow at an annual rate of 8.1% in the next five years, making its forward price to earnings multiple of 8.3x very attractive, given a forward dividend yield of 1.9%.
The final takeaway
Innovative companies, like these, can deliver impressive returns to investors. And each of these companies has serious potential to deliver market-beating growth to those with long-term horizons. So keep a close eye on these three stocks if the market continues to sell-off.
Want More Great Investing Ideas?
ETSY shares were trading at $145.38 per share on Tuesday morning, up $5.65 (+4.04%). Year-to-date, ETSY has gained 228.17%, versus a 6.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|ETSY||Get Rating||Get Rating||Get Rating|
|TDOC||Get Rating||Get Rating||Get Rating|
|NEE||Get Rating||Get Rating||Get Rating|