It’s not something investors like to think about, but stock market crashes and corrections are an integral part of the investment cycle and the price long-term investors pay to be admitted into one of the greatest creators. wealth in the world.
Over the past two weeks, the investing community has received a stark reminder that stocks can go down just as easily and they go up. The tech-heavy Nasdaq Compound entered correction territory, while the benchmark index S&P500 faces its worst fall in over a year.
While stock market corrections can be confusing, they are also historically the perfect time to invest money in the market, especially if your average holding period is measured in years. Given the general propensity for the market to head higher over the long term, buying the following four stocks during the current correction would be a stroke of genius.
While it’s impossible for investors to accurately predict when a stock will bottom, it’s not as difficult to identify companies with competitive advantages. Electric vehicle (EV) manufacturer Nio (NYSE: NIO) is one of those companies that has dazzled Wall Street with its execution and innovation.
Like most auto stocks, Nio was held back in the second and third quarters by shortages of semiconductor chips. Fortunately, these supply issues have mostly resolved, allowing the company to deliver over 10,000 EVs in November and December. Nio currently has an annual operating rate of 130,000 EVs, but is expected to reach a rate of 600,000 EVs by the end of 2022, according to management. The introduction of three new electric vehicles, along with growing sales of its existing trio of vehicles, is expected to propel sales higher this year.
The company’s management team is also to be commended for introducing the Battery as a Service (BaaS) program in August 2020. The BaaS program allows buyers to charge, exchange and upgrade level the batteries of their electric vehicles. Additionally, signing up for BaaS reduces the initial purchase price of Nio’s EVs. In return, customers pay a recurring monthly fee to Nio for the BaaS program. The company effectively forgoes a small percentage of low-margin, short-term sales to generate predictable, higher-margin, long-term cash flow.
Although Nio is losing money as it ramps up production, the recent stock selloff represents the perfect buying opportunity for patient investors.
Among growth stocks, cannabis companies arguably offer the best value right now. Marijuana stocks have been pummeled for nearly a year as President Joe Biden and the Democratic-led Congress failed to push through any cannabis reform measures. But this correction marks an opportune time for investors to buy into a high-quality pot stock like Trulieve Cannabis (OTC: TCNNF).
Trulieve is a Multi-State Operator (MSO) that has done things a little differently than most seed-for-sale operators. Instead of planting its proverbial flag in as many markets as possible, Trulieve focused on the legal medical marijuana market in Florida. Despite operating 160 dispensaries in 11 states, 112 of these stores are located in the Sunshine State. The saturation of the Florida market has allowed Trulieve to gobble up half of the state’s dried flower and oil market share, while reducing its marketing costs. The end result is over three years of recurring profits (and counting).
The next step in Trulieve’s rapid growth came on October 1, 2021, when it completed the largest U.S. pot acquisition in history. The purchase of MSO Harvest Health and Recreation introduced Trulieve to new markets and gave it the leadership position in the home market of Harvest Health, Arizona. Grand Canyon State voted to legalize recreational weed in November 2020 and appears to be on track to eventually hit $1 billion (or more) in annual pot sales.
At nearly 20 times Wall Street consensus earnings for 2022, Trulieve is a fledgling business.
Another stroke of genius for long-term investors would be to buy stocks from a cloud-based lending platform Reached (NASDAQ: UPST), which have been on a wild ride over the past six months. After quadrupling in value in three months, stocks are now down nearly 80% from their peak.
The big concern for Upstart is that higher lending rates will reduce demand for everything from personal loans to bank-level mortgages. Given that more than 90% of the income generated by Upstart comes from banks or service fees, it is obvious that a slowdown in lending is to be feared.
Yet even with this concern on the table, Upstart’s artificial intelligence (AI) lending platform has all the tools it needs to continue growing at a double-digit rate, the highest in the industry. ‘industry. Relying on AI and machine learning to help determine the creditworthiness of loan applicants results in faster approvals and lower costs for lenders. In other words, it will make Upstart’s solutions even more popular with financial institutions.
Another thing to consider is that Upstart has just started scratching the surface with the potential of its AI-powered lending platform. Most of its services have historically focused on personal loans, which represent an $81 billion market, according to Trans Union. But following the acquisition of Prodigy Software, Upstart got into car lending. The total addressable market for auto loans is about eight times larger than that for personal loans.
With Upstart profitable and blowing Wall Street earnings expectations, it looks like a no-brainer buy.
One last stroke of genius investors can make during this stock market correction is to buy shares of a tech-focused real estate company. red fin (NASDAQ: RDFN).
Similar to Upstart, shares of Redfin were battered by fears of higher interest rates. Since mortgage rates tend to closely mirror the movement of 10-year Treasury bills, higher rates should stifle some home buying and selling activity.
Despite these concerns, mortgage rates should remain well below their historical average for years to come. While there may be a first instinctive reaction to rising mortgage rates, homebuyers will still have plenty of incentive to take the plunge.
What makes Redfin so appealing is the cost savings and customization it can offer, compared to traditional real estate companies. For example, while most real estate companies charge a commission/listing fee ranging from 2.5% to 3%, Redfin charges 1% or 1.5%, depending on the number of previous deals with the company. . Based on a median selling price of an existing home of $358,000 in December 2021, according to the National Association of Realtors, a Redfin seller could save more than $7,100 compared to a traditional realtor.
Apart from cost savings, Redfin’s personalized services also attract users to the platform. The company’s concierge service helps with staging and projects to maximize the sale value of a home. Meanwhile, its RedfinNow program, which operates in select cities, buys homes with cash and takes the hassle out of selling property.
Expect Redfin to continue to gobble up existing home sales market share in the US for the foreseeable future.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.