No sugar coating: January was a tough month for Wall Street and investors. Both the benchmark S&P 500 and the growth-stock-dependent Nasdaq Composite experienced their biggest pullbacks since the pandemic-triggered crash of March 2020.
Despite the sharp rally in the stock market in recent days, there is still no shortage of catalysts that could send the stock market into chaos. It is important to understand that while stock market crashes and corrections are common, historically they are also the best time to put money into quality companies.
If the recent correction accelerates into a full-blown stock market crash, then the following four stocks would be genius buys.
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For more than a decade, e-commerce giant Amazon (NASDAQ: AMZN) has been a smart choice for investors to put money in during any crash or significant correction.
Most people are familiar with Amazon because it has a top-notch online marketplace. Last August, eMarketer estimated that by 2021, Amazon will account for more than 41 percent of all online spending in the United States. That's more than 34 percentage points higher than its closest competitor, Walmart.
What makes this online marketplace stand out, however, is the company's drive to grow its Prime membership. The annual fees paid by Prime's roughly 200 million members have helped boost Amazon's slim retail margins and, more importantly, the company's ability to undercut traditional brick-and-mortar retailers on price. It doesn't hurt that Prime members prefer to get their money's worth by buying more items on the platform and staying within Amazon's ecosystem of products and services.
In case you didn't realize it, Amazon is also a major player in cloud infrastructure services. Amazon Web Services (AWS) accounted for nearly a third of global cloud infrastructure spending in the third quarter. Arguably, cloud spending is still in its early stages, which means this high-margin segment could more than double Amazon's operating cash flow by mid-decade.
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Planetary 13 Holdings
One thing that became very clear during the pandemic was that marijuana was viewed as a non-discretionary commodity by consumers. In other words, people bought medical and recreational pot regardless of how the economy was performing. If the stock market crashes, this is what makes the unique cannabis stock Planet 13 Holdings (OTC:PLNH.F) such a genius.
Instead of opening stores in as many legal states as possible, Planet 13 has only two operating dispensaries. But these aren't your average fondue stores. The Las Vegas superstore is 112,000 square feet and features a café, event center and consumer-facing processing center, in addition to plenty of sales space. Meanwhile, the Orange County Superstore in Santa Ana, California, is 55,000 square feet, with 16,500 square feet devoted to sales. These stores serve as both an experience and a sales opportunity.
Planet 13 has done a particularly good job of growing sales at its flagship Las Vegas SuperStore. This particular location incorporates technology through self-service kiosks and is (pardon the pun) highly personalized. Buyers can be guided through the store by their own personal advisor.
With a focus on tourists, Planet 13 will expand to Chicago, Illinois, Miami, Florida and Orlando, Florida as its next destinations. Considering that the company is on the verge of recurring profitability, it would be a wise purchase in the event of a market crash.
GM CEO Mary Barra introduces the Chevrolet Silverado EV. Photo credit: General Motors.
Value stocks can also be genius buys during market crashes or corrections. Few companies offer a more attractive valuation summary than auto giant General Motors (NYSE:GM).
Historically, auto stocks have had low price-to-earnings ratios, reflecting their cyclical linkages and generally high debt levels. But automakers such as GM are about to benefit from a decades-long growth surge from the electrification of consumer and corporate vehicles.
Last year, GM announced that its total spending on electric vehicles (EVs), self-driving cars and batteries will increase to $35 billion by 2025. CEO Mary Barra expects GM to have two fully operational EVs up and running with battery plants by 2023, and the company will have 30 new EVs in the world by mid-decade.
As I've pointed out before, the opportunity for GM is not just in the United States. In 2021, the company delivered about 2.9 million vehicles in China, the world's leading auto market. With a large presence in China and the infrastructure needed to expand electric vehicle production, GM has a real opportunity to capture electric vehicle market share.
At roughly eight times Wall Street's widely expected earnings in 2022, GM can push its shareholders to safety during periods of increased volatility.
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The last stock that would be a genius buy in the event of a stock market crash is cybersecurity company CrowdStrike Holdings (NASDAQ: CRWD).
Buying companies that provide essential goods or services is a smart way for investors to position themselves during a crash or correction. While we often think of things like water and electricity as basic needs goods or services, cybersecurity has evolved into a necessary solution for businesses with an online or cloud-based presence – especially in the wake of the pandemic. As enterprise data increasingly moves to the cloud, third-party providers like CrowdStrike that focus on end-user protection are being relied upon to an even greater degree.
CrowdStrike's cloud-native Falcon security platform is effectively the gold standard for data protection. Falcon oversees approximately 1 trillion events per day and has become more efficient over time in identifying and responding to threats thanks to the use of artificial intelligence.
Arguably the most jaw-dropping aspect of CrowdStrike is that the company has met its long-term adjusted subscription gross margin targets (77% to 82%+), but is still in the early stages of growth. The key to its success is that existing customers are buying multiple cloud module services. In less than five years, the percentage of subscribers with four or more cloud module subscriptions has soared from 9 percent to 68 percent. Since cybersecurity is a high-margin industry, CrowdStrike should have an easy time generating cash flow.