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3 Stocks to Add to Your Portfolio in the Event of a Market Downturn

Stock market crashes are a normal part of well-functioning financial systems. Every so often, a wave of selling starts and gains momentum as it spreads. Sometimes it can be triggered by a poor economic report such as rising unemployment. At other times, selling can start with no discernable cause.

Regardless, stock market downturns can be opportune times to buy excellent businesses at lower prices. If you prepare ahead of time, you can be ready to snap up great stocks while many are selling in panic. Here are three stocks to consider putting on your list to buy in the event of a market crash.

Image source: Getty Images.

1. Netflix

The streaming content pioneer Netflix (NASDAQ: NFLX) is an excellent stock to own. In the last decade, Netflix has increased revenue at a compounded annual rate of 27.7%. Meanwhile, it expanded its operating profit margin from 11.7% to 18.3% during that period. It did this while building its competitive advantage by accumulating a treasure trove of content assets.

In 2020, Netflix earned $25 billion in revenue. That gives the company a massive content budget that keeps growing over time. Note, content is one of the most durable assets a company can own. It's unlike cars, laundry machines, or computers that eventually must be scrapped. A movie or show can theoretically serve customers for generations. Every year, Netflix is deepening its library of content, which could help attract and retain subscribers for decades.

A stock market crash could allow investors a chance to buy this strong company at a bargain price. Already, Netflix is trading at its lowest price-to-earnings (PE) ratio in the last five years. The company's PE ratio is 47 which is down significantly from the 300-plus PE ratio reported in 2017

2. Apple

Apple (NASDAQ: AAPL) has done an amazing job creating innovative products consumers love. In the previous two decades, Apple has given the world iPods, iPhones, iPads, AirPods, the Apple Watch, and more. What's more, the company has iterated those products with the skill to keep them popular despite rising competition. As a result, Apple has grown to generate $366 billion in revenue in 2021 and reached a market cap of $3 trillion.

Its excellent products have created a loyal following among consumers who have kept it top of mind. In addition to customer loyalty, Apple has built an ecosystem that encourages repeat purchases. For instance, Apple Music is a streaming music service that folks with Apple products can subscribe to that has several customizable features. When people need a phone replacement, they might hesitate to consider another brand because they have spent time customizing Apple Music on their iPhones. Apple's services business has grown to 18.6% of revenue and generates higher profit margins than hardware.

Apple is an exceptional business selling at a PE ratio of 30. A stock market downturn could cause Apple to fall, which would be a great opportunity for long-term investors to buy.

3. Pinterest

Image-based social media company Pinterest (NYSE: PINS) has grown to boast 444 million monthly active users. Its app is free to download and use. Pinterest makes money by showing advertisements to folks browsing the pictures and short videos on its platform and website. In that regard, Pinterest is growing revenue nicely from $473 million in 2017 to $1.7 billion in 2020. The company is not yet profitable on the bottom line, but it may only be a matter of time if it keeps growing revenue at that rate.

It certainly has a long runway for growth. The global advertising industry was estimated to generate $763 billion in sales in 2021. Pinterest is still only a tiny sliver of the overall ad industry. Management is implementing several strategies to take a larger share, one of them being, expanding its monetization capabilities in international markets. Interestingly, 80% of Pinterest's users are from international segments in its most recent quarter, and Pinterest only generates 21% of its revenue from overseas.

Pinterest is trading at a price-to-free cash flow of 34. A stock market downturn could give investors a chance to buy this social media stock with significant growth opportunities for an even lower price.

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Parkev Tatevosian owns Apple. The Motley Fool owns and recommends Apple, Netflix, and Pinterest. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.


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