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Home Insights Trading Tips

Buying These 3 Stocks in a Market Crash Could Lead to Explosive Returns

Don't stress about a market crash. Use it as an opportunity to buy these three stocks.

November 12, 2020
in Insights, Trading Tips
Reading Time: 4min read
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Stock Crash

Stock Crash

2020 has been a year of record volatility for stocks, and more big swings could be on the way. We put together a panel of three Motley Fool contributors and asked each member to identify a stock that has what it takes to post massive returns if purchased during a market crash. Read on to see why they think Cloudflare (NYSE:NET), Facebook (NASDAQ:FB), and AT&T (NYSE:T) could be huge winners for your portfolio.

One of the best plays in cybersecurity

Keith Noonan (Cloudflare): Surging demand for cybersecurity services is one of the safest bets around. Even if you’re not yet familiar with Cloudflare, it’s a virtual certainty that you’ve visited web pages that depend on its technology.

Cloudflare provides protections for websites that stop bad actors from rendering pages inaccessible. It also provides services for speeding up content delivery, ensuring that web pages function quickly and responsively. The company helps support over 27 million different web properties, and it’s on track for big growth as commerce and communications increasingly take place through digital channels and the need to protect against web-based cyber attacks rises.

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Cloudflare has a market capitalization of roughly $10 billion and trades at approximately 25 times this year’s expected sales. With that kind of growth-dependent valuation, it wouldn’t be surprising to see the stock post substantial sell-offs during a market crash, but investors with a long time horizon should treat any substantial sell-off for the stock as an opportunity to build a position in the cybersecurity specialist.

The company is growing revenue at a rapid clip, and it’s posting fantastic gross margins that signal the business will eventually be very profitable once management pivots from focusing on building its technology platforms and acquiring new customers. Sales climbed 48% year over year last quarter, and the business posted a gross margin of 76%.

Cloudflare’s leading position in its corner of the cybersecurity industry puts it in great position to continue growing its customer base and launch additional services, and the stock has the makings of a potential world beater.

The digital ad titan

Joe Tenebruso (Facebook): During times of economic turmoil, businesses tend to pull back on their marketing investments. Investors, in turn, often sell off the stocks of companies that rely on advertising revenue, of which Facebook (NASDAQ:FB) is one. Yet the digital ad giant is benefiting from powerful long-term trends that will outlast any economic downturn. So, if a stock market crash gives you the chance to buy its shares at a discount, you should seize the opportunity. Here’s why.

Advertising dollars are shifting from traditional formats such as TV to digital media channels, where Facebook is dominant with more than 3 billion users across its collection of social media sites. COVID-19 is accelerating this shift, boosting Facebook’s revenue and earnings in the process. During one of the worst economic declines in modern history, Facebook’s second-quarter revenue rose 11% to $18.7 billion. Its operating income, meanwhile, surged 29%, to $6 billion.

The digital ad market is already massive in size and scope, yet it’s poised to become much larger. Global digital ad spending is projected to expand from $333 billion in 2019 to $517 billion by 2023, according to eMarketer. That leaves long runways for growth still ahead, even for a behemoth like Facebook. Investors who buy its stock stand to profit handsomely as seizes its share of this enormous industry.

Faster 5G speeds could connect AT&T with growth

Will Healy (AT&T): At first glance, AT&T may seem like a strange choice. The stock first reached its current price in 1995. Intense competition from rivals T-Mobile and Verizon cut into profits. Moreover, moves such as purchasing DirecTV and the massive investment in building a 5G network left the company with a heavy debt load.

However, AT&T is now one of three 5G providers in the U.S., and the tens of billions needed to build an additional 5G network will probably deter additional competitors.

Also, due to the rise of artificial intelligence (AI) and other technologies, 5G will probably increase the demand for broadband significantly. Furthermore, the company could benefit from WarnerMedia offerings such as HBO Max and Turner. Additionally, a rumored sale of DirecTV may further stoke investor confidence.

AT&T stock trades at just nine times forward earnings. Analysts expect profit growth to remain flat in the near term. However, as 5G sees wider adoption, profits could finally begin to increase.

Moreover, one area where shareholders have long seen growth is in the rising dividend yield. Its current annual payout of $2.08 per share yields about 7%. The company has increased its dividend every year since 1985, meaning it will probably choose to hold its Dividend Aristocrat status and continue the payout hikes.

This payout gives stockholders a generous cash return, and with 5G now beginning to take off, investors may not have to wait long for growth.

Source: Fool.com

Tags: 5GBusinessCybersecurityInsightsInvestorsNetworkTrading Tips
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