3 discounted growth stocks to buy in the event of a stock market crash



Things have been near perfect for Wall Street and the investment community lately – maybe a little too much perfect.

From the reference S&P 500 (SNPINDEX: ^ GSPC) bottomed out in March 2020, the index more than doubled in value. This is the strongest rebound from a bearish low in the S&P 500’s long history. Yet history also shows that stock market crashes and corrections are rife and the price to pay to participate in the market. one of the greatest creators of wealth on the planet.

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Stock market crashes and corrections are commonplace

Data from market analysis firm Yardeni Research shows that the S&P 500 has fallen 38 double-digit percentages since the early 1950s. This corresponds to a notable drop, on average, every 1.87 years . Even if Wall Street does not live up to the averages, it shows how common steep corrections and crashes have been throughout history.

Speaking of history, Wall Street has consistently shown for decades that bouncing back from a bear market bottom is a process. After each of the previous eight bear market lows, the S&P 500 has lost at least 10% of its value once or twice in 36 months. We are currently more than 19 months from the low point of the pandemic and have yet to experience a double-digit drop.

History has also been pretty clear on what happens to stocks when valuations are stretched too far upward. On November 1, the S&P 500 Shiller price / earnings (P / E) ratio closed above 39. The Shiller P / E examines inflation-adjusted earnings over the past 10 years. In the previous four instances where the S&P 500 Shiller P / E exceeded 30, dating back to 1870, the index subsequently lost at least 20% of its value.

The point is that the likelihood of a crash or a fix increases. We may not know precisely when this is going to happen, how steep the drop will be, or how long it will last, but this data certainly gives credence to the idea that a double-digit percentage drop could be. future.

Market declines are a sure-fire opportunity for patient investors

The good news for long-term investors is that every double-digit percentage drop in the stock market throughout history has turned out to be a buying opportunity. These declines have been particularly lucrative opportunities to buy discounted growth stocks, which tend to be hit hard during crashes and corrections.

If a stock market crash or sharp correction occurs, the next three discounted growth stocks would be perfect buys.

A couple meet a real estate agent outside a two-story house.

Image source: Getty Images.

Red tuna

The First Tech-Driven Real Estate Company is the first tech-driven real estate company that investors can confidently recover in a crash or correction. Red tuna (NASDAQ: RDFN).

Redfin’s main criticism is that the company has benefited from historically low mortgage rates, which are expected to rise over time. History has shown that higher mortgage rates tend to suppress home buying activity, which in turn would slow Redfin’s rapid growth rate. While this valuation has often been ad hoc for traditional real estate companies, Redfin is far from traditional.

When a buyer or seller is looking for a real estate professional, they will often pay listing fees / commissions of between 2.5% and 3%. However, with Redfin, the registration fee is 1% or 1.5%, depending on the number of past deals done with the company. According to the National Association of Realtors, the median existing home sold in September 2021 had a sale price of $ 352,800. This means that sellers who choose Redfin can save an average of $ 7,000. This is not pocket money and it demonstrates Redfin’s dedication to saving its customers money.

Beyond reducing the prices of traditional real estate companies, Redfin relies on its personalized services with higher margins to attract new clients. For example, the company’s janitorial service educates sellers on staging and upgrades that will help them maximize the selling price of their home. There is also the RedfinNow service, which has been extended to a number of new cities. RedfinNow acquires homes from sellers with cash, eliminating the hassle and haggling that typically comes with selling a home.

Since the end of 2015, Redfin’s share of existing home sales in the United States has grown steadily from 0.44% to 1.18%, and it has a lot of room for improvement. If a sharp drop were to occur in the wider market, this would be the perfect stock to pick up.

A person browsing a pinned board on Pinterest using a tablet.

Image source: Pinterest.

Pinterest

Another discounted growth stock that would be a good idea to buy in the event of a stock market crash is the social media platform. Pinterest (NYSE: PINS).

Pinterest has suffered a lot from investors over the past three months. It disappointed with a sequential quarterly decline of 24 million monthly active users in the second quarter, and was the subject of short-lived rumors that it would be acquired by Pay Pal. PayPal has since denied any interest in buying Pinterest at this time. This confluence of factors halved Pinterest from its all-time high.

While there’s no embedding to say things haven’t been perfect for Pinterest, pessimists are also overlooking a number of important metrics. For example, Pinterest’s three-year Monthly Active User (MAU) growth trajectory is still well within its normal range, even with higher vaccination rates reducing net MAUs in the second quarter and encouraging people to leave the house. them.

What’s even more important is that Pinterest’s monetization efforts continue to be strong. Despite growing its total MAUs of “only” 9% in the quarter ended June, average revenue per user (ARPU) grew 89% globally and 163% internationally compared to the period of the previous year. This demonstrates that merchants are more than willing to pay big bucks to reach potentially motivated Pinterest buyers.

Plus, don’t overlook Pinterest’s transparency compared to other social media platforms. Its whole premise is based on the sharing by users of the things, places and services that interest them. This allows marketers to target their advertising budget more effectively than virtually any other social media site. It also positions Pinterest to become an ecommerce force to be reckoned with by the end of the decade.

Weak Pinterest stocks in a crash would be an ideal buying opportunity.

An elderly person using a laptop to have a virtual consultation with a doctor.

Image source: Getty Images.

Teladoc Health

A third discounted growth stock that’s begging to be bought in a crash or strong correction is the backbone of telemedicine Teladoc Health (NYSE: TDOC).

The blow against Teladoc is similar to that of Redfin. In other words, he was in the right place at the right time when the pandemic hit and has benefited tremendously from a massive increase in virtual tours. Pessimists believe the growth of virtual tours will slow significantly as vaccination rates rise and life returns to some semblance of normalcy.

The problem with this shot is that it completely ignores how Teladoc is changing the healthcare landscape. Providing virtual tour channels is more convenient for patients and can be particularly useful for physicians when trying to keep tabs on chronic care patients. This ease of access should ultimately improve patient outcomes and reduce out-of-pocket costs for health insurers. In short, health insurers will be keen on telemedicine applications for a long time to come.

Teladoc also improved its long-term growth prospects by acquiring applied health signals company Livongo Health a year ago. Livongo uses artificial intelligence to send advice to chronic care members to help them lead healthier lives. At the end of September, Livongo had 725,000 registered members. As Livongo expands its services beyond diabetes patients to people with hypertension and weight control issues, its pool of potential members will skyrocket.

Investors should also note that Teladoc Health’s operating results will improve significantly in 2022. The costs of acquiring Livongo significantly increased its losses in 2021. But these one-time expenses will not be there next year. .

In the event of a crash, Teladoc Health would make a smart buy.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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