Stock market crashes are a natural part of the business cycle. However, instead of panic selling during these periods of inevitable decline, investors should relish them as an opportunity to pick up quality stock at a bargain price.
In a bear market, some of the best shares to buy and hold are young, rapidly growing companies, with high potential to outpace their rivals over the long haul.
Crashes normally occur because of underling secular trends in the wider market; they aren’t usually the aggregate result of poorly performing businesses.
Because of this, firms with deep value and excellent growth opportunities – whose price falls temporarily with the rest of the market – can be bought cheaply with a high likelihood that their value will bounce back again due to solid fundamentals. Indeed, downturns only tend to last around 390 days on average – yet can recover with bull runs that continue for 5 years or more.
For different reasons that you’ll soon discover, the following three stocks are all excellent buys if the market makes a sudden, unexpected drop – turning market pain into your long-term gain.
Upstart Is Disrupting FICO Scores
Upstart Holdings, Inc. (UPST) is the brainchild of three former Google employees – Dave Girouard, Anna Counselman, and Paul Gu – who had a radical vision for the future of the lending industry.
Their belief in the power of artificial intelligence is revolutionizing the loan application system, rapidly undercutting the reliance on legacy-style FICO scores, and instead making use of powerful machine learning algorithms they say can lower loan repayments for borrowers and increase approval rates for lending institutions.
What distinguishes Upstart is the fact that the firm generates almost all of its revenues from fees related to the use of its proprietary platform.
The company only determines whether a consumer meets the threshold for a loan, and it’s then up to the lending bank to underwrite the actual loan itself.
Importantly, the company has also diversified the number of ways in which it gathers these fees as well. For instance, Upstart (UPST) can charge banks a referral fee of between 3% to 4% for every loan processed on the Upstart.com site; or, alternatively, UPST can charge a separate fee of 2% when banks use Upstart’s technology platform on their own website instead.
Upstart also takes an ongoing servicing fee of 0.5% to 1% over the course of the loan too.
Upstart had a spectacular second quarter and continues to add partner institutions to its platform at a satisfying rate. While it made the case for its business model well, the company also passed the proof-of-concept test with flying colors. Expect Upstart to weather anything the market throws at it in the future.
Sea Limited Has 3 Strings To Its Bow, All Growing Fast
Sea Limited (SE) is a company that appears to do everything. It’s an e-commerce business, a digital entertainment platform, and an online payment and financial services provider rolled into one.
What makes SE so attractive to investors is that it still has enormous room for improvement. First, Shopee, SE’s e-commerce business, despite its massive revenues, still isn’t profitable; but all the signs point to this changing soon, as the segment witnessed its Taiwan and Malaysia operations turn a positive adjusted EBITDA for the first time in the last quarter.
Second, Garena, Sea Limited’s online gaming platform, only has a paying user fraction of 12% compared to its total number of active users. This hasn’t stopped it being Sea Limited’s highest earning subsidiary though, with profits of $741 million of off revenues of $1 billion.
However, those paying users are growing, and growing fast. Quarterly paying users rose to 92 million – up 85% – during Q2, and, with the continued success of its Free Fire game, this trend only looks set to continue.
Finally, SeaMoney, the smallest of SE’s businesses, is also growing nicely. According to industry research, 70% of the market that Sea Limited serves in South East Asia is under-banked – which is good news for SeaMoney, as its mobile wallet services would be an excellent fix for this.
Additionally, SeaMoney is seeking to obtain digital bank licenses in the region, which will further cement its presence in the South Asia area.
Snowflake: The Perfect Stock For The Cloud?
There are few businesses so perfectly fit for the Cloud revolution as Snowflake Inc. (SNOW). The company is a specialist in enabling larger-sized enterprises migrate data onto the Cloud, and, once there, Snowflake provides the tools for those enterprises to leverage their business analytics and intelligence potential.
Snowflake didn’t have a great beginning to 2021, as its share price fell 32% over the first six months of the year. But the stock recovered well in the meantime, and is now trading just short of its year-to-date high of $314.
A strong second quarter earnings card suggests the company is back on track, with the firm showing good revenue growth as its margins also expand.
Despite Snowflake’s volatile stock price history, the company currently sits on the edge of a tremendous market opportunity. SNOW reports that while the Americas still generate 82% of its revenue, it has strong momentum across international markets, particularly China, Europe, the Middle East and Africa.
However, what’s really crucial for Snowflake is that the company’s revenue is 93% consumption-based. This means that the business looks like an SaaS company, but isn’t – making SNOW a good hedge against market downturns when they occur.
Because customers need more flexibility when paying for services during times of financial uncertainty, Snowflake’s billing structure makes it the preferred choice when the monetary squeeze is on. Coupled with its promising growth, Snowflake is the perfect stock for market conditions both good and bad.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.