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Typically, I like to set aside some cash in my portfolio so that I am ready to buy stocks on my shopping list in the event of a market crash. Often, the top of my list includes stocks I already own. That’s because I have already researched the companies and have become familiar with the businesses.
Here are the five at the top of the list to add to if there is a broad stock market crash that takes these favorites of mine down along with everything else.
Image source: Getty Images.
At the pandemic’s onset, the e-commerce retailer thrived, gaining millions of new customers. Some of them will leave as economies reopen, to be sure, but it will likely exit the pandemic with millions more customers than it started. And Amazon (AMZN -4.58%) has become much more than an e-commerce business. Over 50% of its operating income is now derived from its web services segment, and advertising grew to over $30 billion in revenue in 2021.
The icing on the cake is that Amazon is selling at its lowest price-to-earnings (P/E) ratio in the last five years. A broad market sell-off could lower the price further.
This global travel facilitator was devastated early in the pandemic. But management took the opportunity to prune unnecessary expenses and make the business more robust. The moves are paying off now, and Airbnb (ABNB -3.38%) is reporting record profits as economies reopen, and folks feel comfortable traveling again. Indeed, revenue at Airbnb in 2021 was 25% higher than in 2019.
It is in an excellent position to thrive as the travel industry recovers from the pandemic. Airbnb is selling at a price-to-free-cash-flow (P/FCF) ratio near its lowest ever.
Chegg (CHGG -5.20%) is an education technology company with a solid competitive moat. The company boasts 75 million pieces of proprietary content that college students find incredibly useful in helping with their courses — so much so that it has signed up 7.8 million subscribers, up 18% year over year.
The company is built on a profitable foundation, and operating results have gone from a loss of $41 million in 2016 to a gain of $78 million in 2021. The content doubles as a low-cost acquisition tool as students come across Chegg when searching for help with their studies.
Chegg is trading at a P/FCF ratio that is also near its lowest in the past five years.
Alphabet (GOOGL -3.60%) needs no introduction. The Google parent has grown revenue at a compound annual rate of 20% over the last decade. The sales increase has created massive operating profit growth from $13.8 billion in 2012 to $78.7 billion in 2021.
Even though the advertising giant earned $257 billion in revenue in 2021, there is still room for it to grow. Marketers spent $763 billion on advertising in 2021, 22.5% higher than what they spent in 2020.
Alphabet is trading at a P/E ratio near to its lowest in the previous five years.
The global coffee favorite rebounded strongly after sales fell at the pandemic’s onset. Like Airbnb, management made prudent decisions that are paying off as economies reopen. Revenue in 2021 of $29 billion was roughly $2.5 billion higher than the $26.5 billion it earned in 2019. Meanwhile, operating income of $4.6 billion in 2021 was its highest in the last decade.
Starbucks (SBUX -3.01%) closed several hundred of its downtown locations early in the pandemic, a move that is proving brilliant in hindsight.
Furthermore, Starbucks accelerated its focus on growing its international footprint. Domestic locations were already more expensive to operate, and it’s only getting worse as labor shortages raise wages. A more significant share of international stores is likely to boost the company’s overall profitability in the longer run.
Starbucks is also trading at a P/E ratio near to its lowest in the previous five years.
As you might have noticed, the common theme among these stocks is that they are selling at valuations near their lows over the last several years. Furthermore, the businesses are on sound footing, increasing profits, and usually with management that has demonstrated skill at steering the business. Those are some of the reasons I bought them in the first place, and I am ready to add more in the event of a market crash.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 04/26/2022.
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Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.
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