The stock market experienced one of its steepest declines less than five months ago. Many stocks have since returned and put up impressive gains, but there is no guarantee that this recent rally will continue. US unemployment rates are still above 10%, state and local governments are struggling financially, large corporations continue to lay off workers, and economies around the world are suffering from the effects of the coronavirus pandemic.
Suffice it to say, all this economic uncertainty could easily push the market down again. If and when this happens, investors should have a shortlist of stocks that are ready to snap with a potential discount. Three Motley Fool employees have highlighted a few companies that need to make the cut. Read on to find out why Shopify (NYSE: STORE), Call (NASDAQ: AAPL), en Microsoft (NASDAQ: MSFT) should be on your list of tech stocks to buy when the market crashes.
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Build in on-ramp to bring things online
Brian Withers (Shopify): The long-term trend of e-commerce has received a boost from coronavirus as many consumers turn to online shopping instead of taking this trip to the local store. This change in consumer behavior has caused many companies to accelerate their plans to build or expand their online presence, and Shopify is perfectly suited to meet this need. The platform was built from the ground up to make it easy for business entrepreneurs to build and run their online platforms.
Shopify has seen tremendous growth. In the last three fiscal years, its topline has increased with a compound annual growth rate of 59%. As the platform has grown, this growth has been undeniably slower, from 73% in 2017 to 47% in 2019, but the coronavirus has changed that trajectory. In the second quarter, the platform saw a huge impulse in buying sales of 119%, which increased its turnover by 97%.
|
Metric |
2017 |
2018 |
2019 |
Q1 2020 |
Q2 2020 |
|---|---|---|---|---|---|
|
Income |
$ 673 million |
$ 1,073 million |
$ 1,578 million |
$ 470 million |
$ 714 million |
|
Revenue Growth (YOY) |
73% |
59% |
47% |
47% |
97% |
Data Source: Shopify Profit Versions. YOY = year-over-year.
Shopify divides its revenue into two segments: subscription solutions and merchant solutions. The subscription revenue comes from the monthly fees that buyers pay to use the platform, ranging from its Shopify Lite subscription at $ 9 per month to its high end Shopify Plus service for businesses and large sellers, starting at $ 2,000 per month. The turnover of this segment grew “only” 21% year over year last year, mainly driven by new buyers joining the platform. The trading solutions segment consists of transaction-based fees, where it takes a small cut of payments, shipping services or sales with its credit card reader for sale. It is this segment where the company saw the biggest gains in the quarter.
In the second quarter, revenue from merchant solutions grew a staggering 148% driven by the enormous growth in gross merchandise volume (dollar amount of goods sold on the platform). At the call of earnings, management indicated that it was the “third quarter in a row of [merchant solutions] acceleration and a growth rate we have not seen since our IPO. “This impressive result enabled the company to scale its operating costs and post a rare positive operating income.
It seems that Shopify is doing well. It benefits from years of investing in innovation, attracting new buyers, helping its existing customers of 1 million plus to sell more in a challenging economic environment, and sitting on $ 4 billion in cash and marketable securities (and no debt). But the one thing that can hold back investors from investing in this high quality operator is their lofty appreciation. The price-to-sale (PS) ratio is 57 with nosebleeds inducing, even higher than some expensive work-from-home software-as-a-service companies such as Slack (P / S ratio of 24), Okta (P / S ratio of 39), and DocuSign (P / S ratio of 37).
If the market pulls back and follows the share of Shopify, investors would be wise in the long run to buy shares of this exceptional operator that powers the future of e-commerce.
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Apple: A textbook handball
Danny Vena (Appeal): Using the latest market crash as a template can be instructive in planning the following. While almost all stocks up to and including some were hit under the route that happened between February and March, it is what has happened in the months since that should help inform investors’ decisions. In addition, a company with impressive prospects should be at the top of an investor’s shopping list when a market crash occurs. Eventually, a dividend yield will increase in the wake of a crash and can give investors peace of mind as they wait for the market to pick up. One stock that clicks all those boxes is Apple.
Like many other companies, Apple took it on the chin when the market crash happened earlier this year, losing more than 30% of its value in just 24 trading days. What happened in the wake of those dark days, however, is informative. Apple gained more than 52% in 2020, and since hitting its recent bottom in late March, the share has doubled. This puts Apple on rare ground, and sports a market cap of more than $ 1.9 trillion, making it the most valuable publicly traded company in the US
There are a number of reasons why Apple’s share has returned, and its increased rise is unlikely to stop there. The company has a number of catalysts that will drive its growth. The emphasis on services in recent years is paying off. Revenue from the segment has been up 81% since late 2017, with a run rate of more than $ 52 billion annually, and now represents 19% of Apple’s subsequent 12-month months.
The company’s pivot for portables is also payable in dividends. Since Apple added the wearables, home and accessories segment two years ago, revenue has grown by nearly 73%. The company – which includes such standout products as AirPods, the Apple Watch, and Beats products – has grown rapidly to more than 10% of the company’s total revenue.
In addition, with the amount of uncertainty, iPhone sales are currently stagnant, but that will not always be the case. It’s also important to remember that with an estimated 950 million iPhones in use worldwide, and the advent of 5G on us, many believe that there’s a massive upgrade cycle just around the corner, which is well worth it. the upcoming release of the iPhone 12.
With these factors as a backdrop, many believe that Apple’s market cap will close at $ 2.5 trillion, which represents 34% upside from the current price.
Let’s not forget Apple’s dividend. Since the company resumed its payout in 2012, the dividend has increased by more than 116%. Apple uses less than 25% of its profits to finance the payout, making it one of the safest.
Given all this evidence, Apple is a textbook stock that you can buy with confidence the next time the market falls.
Image Source: Getty Images.
Dare not overlook this technical stalwart
Chris Neiger (Microsoft): With so many technology stocks flying high right now, it can be easy for investors to look at younger, more flashy companies to invest in, and miss the stability of tech giants like Microsoft. Don’t get me wrong, there is nothing wrong with investing in technology growth stocks at the moment, but what Microsoft stocks when the market crashes is a wise bet. Here’s why.
First, even during the pandemic, Microsoft put up some impressive financial gains. Total revenue increased 13% year over year to $ 38 billion in the last four years. In addition, sales of the company’s more personal computing segment jumped 14% and its productivity and business segment grew by 6%.
Microsoft has built itself into a stable tech company through its popular software offerings such as Office and Windows, but it is the cloud computing company Azure that is driving Microsoft’s latest growth.
Azure sales jumped 47% in the fourth quarter and it remains one of the most popular cloud computing infrastructure companies. Azure currently holds 18% of the cloud computing market, which is behind Amazonis 33%, but far ahead Alphabet subsidiary Google’s 8% market share. What’s great about Azure is not only that it’s the no. Takes 2nd place in cloud computing, but that market is not yet growing. Global computer infrastructure market information will grow from $ 73 billion in 2019 to an estimated $ 167 billion in 2024.
It is also worth noting that Microsoft has heated up many previous market accidents and economic downturns and is stronger than ever. Even after the share price rose in March, Microsoft’s share has rebounded and has risen 33% since the beginning of this year. Investors looking for a tech stock that is financially viable to drive out economic uncertainty and move forward would be wise to pick up some of Microsoft’s stock.
