This was a historic year in many ways. The unprecedented coronavirus pandemic initially hit stocks and sent them haywire in the first quarter. 34% the benchmark S&P 500 lost in less than five weeks represents the fastest bear market decline of at least 30% in history.
After this historic crash, investors saw the S&P 500 recover all that was initially lost (and then part) in a roughly five-month rally. This marked the fastest ever recovery from a bear market low to new highs.
Now history seems to repeat itself. You see, in the last eight bear markets dating back to 1960, there have been a total of 13 corrections ranging from 10% to 19.9% in three years. This is to say that bear market rebounds don’t just go up. Each bounce inevitably leads to one or two sizable corrections.
What’s particularly interesting about the current correction is that it is driven by tech stocks. High-growth tech stocks have followed the rally since their March 23 low, but now the tech wreck is pushing the broader market lower.
However, the decline in stocks is not necessarily negative. While market corrections can damage your personal rights to brag to your friends and family for a couple of weeks or months, they have historically always represented opportunities to buy high-quality businesses at bargain prices. Bull market rallies have always made corrections to the rearview mirror.
If the current tech disaster continues, the following four stocks will become very attractive additions to investor portfolios.
One of the largest publicly traded companies on the planet, Amazon (NASDAQ: AMZN), should find its way into investor shopping carts if it continues to decline.
Most people are probably familiar with Amazon for its ecosystem of sellers, which, according to analysts from Bank of America/ Merrill Lynch, is responsible for approximately 44% of all online sales in the US There is no doubt that retail will be responsible for the lion’s share of Amazon’s sales for the foreseeable future.
But Amazon is more than just an online retailer with very thin margins. Amazon also operates a leading infrastructure cloud service, Amazon Web Services (AWS). We were already seeing an increasing number of companies move to an online / cloud presence well before the 2019 coronavirus (COVID-19) pandemic hit. COViD-19 was simply a blow to the arm for AWS’s growth.
As of the June quarter, AWS increased year-over-year sales by 29%. It was surpassing $ 43 billion in extrapolated full-year sales. Cloud service margins are much juicier than retail or ad-based margins, so this strong double-digit growth in AWS will push Amazon’s operating cash flow through the roof over the next three to four years. If Wall Street simply values Amazon at the center of its price / cash flow multiple over the past decade, it should be a $ 6,000 stock by the end of 2023.
Cloud stocks led this rally and have been among the hardest hit in recent times. If the tech disaster continues, edge cloud computing service provider Quickly (NYSE: FSLY) is a name to consider buying.
Fastly has seen a steady increase in demand for its services, which is to bring content to end users as quickly and safely as possible. Fastly was already growing at lightning speed before COVID-19, but the shift from the traditional office environment has made online content and consumption even more important.
The most recent quarter saw increased spending by the company’s existing customers, as well as more robust onboarding of new customers since the company’s initial public offering. Creating new customers is important to Fastly, but it’s the increase in spend from its existing customer base (some of which are branded companies) that will drive the expansion of the operating margin.
Of course, Fastly isn’t generating any profits yet. But with every other metric moving in the right direction, it’s a company you’d be foolish (with a little ‘f’) to ignore.
Palo Alto Networks
Did I mention how important cloud computing titles have become? If tech stocks continue to be torn apart, cybersecurity companies Palo Alto Networks (NYSE: PANW) it could be the perfect addition to your wallet.
Among the many trends that are expected to produce double-digit growth over the decade, cybersecurity could offer the least / most secure return of the bunch. This is because hackers and robots don’t take a day off just because the US or the global economy is struggling or a business owner has had a bad day. Internal network and cloud security has evolved into a basic service, providing a level of cash flow predictability hard to find in high-growth tech stocks.
Palo Alto will benefit from a necessary business transition that could negatively impact its operating results in the very short term, but greatly expand its margin potential over the long term. This transition means reducing the emphasis on physical firewall products in favor of subscription services and cloud protection.
Additionally, Palo Alto has aggressively expanded its security solutions portfolio and is targeting small and medium-sized businesses through bolt-on acquisitions. This expense should allow the company to maintain a double-digit growth rate for many years to come.
Finally, investors should consider swallowing shares of the social media giant Facebook (NASDAQ: FB) if the beatdown on tech stocks continues.
An investment in Facebook means choosing the most dominant social media platform. It ended the June quarter with an insane 2.7 billion monthly active users on Facebook. This rises to 3.14 billion if you include its other sites, such as Instagram and WhatsApp. On a combined basis, Facebook, Facebook Messenger, WhatsApp and Instagram (not in that order) are four of the seven most visited social platforms. Advertisers know they can’t go anywhere else to reach such a large and / or targeted audience, giving Facebook incredible ad pricing power.
Facebook hasn’t even fully unlocked its growth potential. With the vast majority of its revenue coming from advertising, it only collects advertising revenue from its flagship Facebook and Instagram platform. WhatsApp and Facebook Messenger have not yet been remotely monetized by the company.
Facebook also has the potential to go beyond ad revenue. The company’s Facebook Pay service is just one example of how it can complement its revenue growth.