The stock market just had a historic sell-off. In fact, it’s in the middle of one of the sharpest and most violent sell-offs, ever.
On Monday March 9, the Dow Jones Industrials Average dropped more than 2,000 points, the first time that’s happened in the history of the stock market. Even further, the index dropped nearly 8%, posting its eleventh-worst percentage decline of all time, and the second-worst percentage decline in more than 30 years.
If that isn’t enough to make your jaw drop, consider this. Less than a month ago, the Dow Jones was at all-time highs. Today the index is flirting with bear market territory.
What now? Some choppiness, and then a sharp rebound.
I’m bullish for a few reasons:
- The coronavirus crisis is being overstated: If you assume the world follows the trajectory of China and South Korea, then strict quarantines will stop the spread within two or three months, and very little direct damage will be inflicted along the way (only 1 in 20,000 people got coronavirus in China).
- Consumers are very strong. Household debt levels and the rate of unemployment are at historic lows. Income levels and savings rates are at historic highs. Consumer sentiment and confidence readings are at also at record highs, and not showing signs of slowing. In other words, this consumer can weather a month or two of slow growth.
- There’s a ton of fiscal stimulus coming down the pipeline. Central banks across the globe are cutting rates, upping their asset purchase programs and considering small business relief packages. At the same time, fixed-income yields across the globe have dropped to record lows. Once the virus passes, the economy will have a lot firepower for a rebound, as record low borrowing costs could fuel record high spending.
- Stocks are dirt cheap. The average dividend yield across the S&P 500 is 2.1%, almost quadruple the 10-Year Treasury yield.
With that in mind, some of the best stocks to buy after the market’s historic sell-off include:
- Adobe (NASDAQ:ADBE)
- Roku (NASDAQ:ROKU)
- Intel (NASDAQ:INTC)
- Okta (NASDAQ:OKTA)
- Microsoft (NASDAQ:MSFT)
- Facebook (NASDAQ:FB)
- Netflix (NASDAQ:NFLX)
- Pinterest (NYSE:PINS)
- Alphabet (NASDAQ:GOOG)
- Splunk (NASDAQ:SPLK)
Best Stocks to Buy After the Sell-Off: Adobe (ADBE)
One of the best stocks to buy right now is cloud services provider Adobe.
For all intents and purposes, Adobe is the textbook definition of a long-term winner. Thanks to its dominant positioning in multiple secular growth markets — including enterprise digital documents and creative media — Adobe has consistently rattled off 20%-plus revenue growth for the past several years. On top of that, the company is rapidly expanding its addressable market to include cloud-hosted customer experience services, implying that 20%-plus revenue growth is here to stay for a lot longer.
At the same time, gross margins are up above 80%. Sustained big revenue growth is driving positive operating leverage. Profit margins are expanding so profits are roaring higher.
With Adobe then, you have a 20%-plus revenue and profit grower, with visibility to sustaining that big growth for a lot longer. Yet, ADBE stock has dropped 20% because of temporary headwinds related to the coronavirus.
In other words, this a short-term scare in a long-term winner.
Another one of the best stocks to buy on the sell-off is streaming device maker Roku.
Much like Adobe, Roku is a long-term winner. This company has gained scale as the world’s largest streaming media distribution platform, basically becoming the “cable box” of streaming TV. Over the next several years, more and more consumers will migrate to streaming services, and more and more consumers will access those streaming services through Roku’s intuitive ecosystem. The more consumers pivot into the ecosystem, the more linear TV ad dollars will flow from cable channels into Roku. This will spark huge revenue growth for several years to come, and because all those revenues have high gross margins, it will inevitably lead to huge profit growth.
As profits roar higher in the long run, so will ROKU stock, especially from today’s depressed levels (the stock sits below $100, while the consensus price target is $150).
Meanwhile in the near-term, the coronavirus shouldn’t have that big of an impact on Roku. Consumers stay at home more for a few weeks. That’s a good thing for Roku, as home-bound customers are probably watching more media content, not less. That means more data, which means better ad targeting capabilities. So once this whole coronavirus scare blows over, I suspect Roku will see a huge bump in ad spend through its platform.
Semiconductor stocks like Intel were hit hardest during the market sell-off, for two big reasons.
First, the coronavirus outbreak in China shut down factories and significantly disrupted the semiconductor supply chain. Second, so long as businesses globally are worried about the outbreak, they won’t be as focused on buying semiconductor equipment.
But both of these two issues are being resolved.
China’s factories are already coming back online, because the coronavirus outbreak there is essentially over. Most analysts and insiders predict that semiconductor supply chains will be fully operational and back to normal by April. At the same time, assuming the rest of the world follows in China’s footsteps, then global coronavirus fears also ought to blow over by April, leading to recharged demand for semiconductor equipment.
Given that these pains are temporary and already being fixed, I see the 25% plunge in INTC stock to dirt-cheap valuation levels as grossly overdone. In the coming quarters, supply chains will restore, demand will come surging back, and Intel stock will roar back above $60.
Cloud security giant Okta is another long-term winner to buy on near-term fears.
Okta is pioneering a huge breakthrough in the cloud security market: don’t secure enterprise workflows, processes, and data with huge systems of defense; instead, secure them with people.
The concept is pretty simple. You don’t need a castle of defense if each individual in your corporation has a suit of armor. Further, if everyone has a suit of armor, then there are no restrictions on employee mobility. It’s a win-win, where you optimize for flexibility without compromising security.
That’s huge in today’s dynamic, mobile enterprise world. Consequently, Okta’s identity-focused security solutions will see huge uptake over the next several years.
In the near-term, such solutions will have depressed demand amid the coronavirus outbreak. But there won’t be much depression here, and it won’t last very long, mostly because the virus should die down in a few weeks.
As such, the recent 20% draw-down in OKTA stock is nothing more than a golden long-term buying opportunity.
Arguably the best stock to buy on the market’s historic sell-off is one of the biggest and best technology stocks in the world, Microsoft.
This company is a long term winner because of cloud computing tailwinds. Long story short, the company has separated itself from the pack as one of the two best infrastructure cloud service providers in the market (the other being Amazon (NASDAQ:AMZN)). Companies are only a fifth of the way through their enterprise cloud migrations. Over the next several years, they will continue on those migrations, perhaps more rapidly than ever before. As they do, more and more of them will chose Azure as their infrastructure cloud platform, leading to huge revenue and profit growth at Microsoft.
Nothing changes about this promising long-term growth narrative because of coronavirus, or low oil prices, or the market sell-off.
Instead, while cloud infrastructure demand may be weak for the next few weeks, it will inevitably rebound when all this turbulence passes, because cloud migration is mission-critical for most businesses.
As such, the 20% plunge in Microsoft stock over the past month seems overdone. Buying the dip here should be rewarded in the long run.
Yet another big tech stock to buy on the dip is Facebook.
The logic is pretty simple. The strength of the advertising market is tethered to the strength of the economy. When times are good, companies spend big on advertising to attract trigger-happy consumers. When times are bad, companies curtail ad spending, because consumers aren’t buying as much and money is tight.
The thinking is that times will be bad so long as coronavirus hangs around. That’s true. So long as the virus is spooking U.S. consumers, they won’t shop as much, and that will lead to depressed ad spending, which will show up as slowing growth on Facebook’s financial statements.
But, this dynamic will last a few weeks, and that’s it. Come April or May, coronavirus fears will have blown over, the economy will bounce back, and significant fiscal stimulus will supercharge consumer and enterprise spending, which will in turn supercharge ad spending.
Come summer 2020, then, Facebook’s numbers should be better, not worse, making the recent 23% drop in FB stock seem like a buying opportunity more than anything else.
Streaming giant Netflix is both a long-term and a near-term winner.
In the long run, the company is dominating the streaming TV game. Yes, the competitive landscape in that market is getting more tough. But, none of those competitors have been able to compete with Netflix, because Netflix continues to leverage its huge viewing data-set to make the best original content in streaming TV. It also helps that the company outspends its peers, and has the best streaming technology in the market.
Long-term, then, as consumers migrate from linear to streaming TV, Netflix will continue to grow its subscriber base, which will power big revenue growth, big profit growth, and big share price gains.
In the near-term, “social distancing” from coronavirus fears will lead to current subscribers watching more Netflix (which gives the company more data) and may even compel new households to sign-up for Netflix out of boredom from sitting at home all day. In this sense, the coronavirus outbreak could actually be a net positive for Netflix.
Big picture — unless we fall into a recession, it’s tough to see an outcome wherein Netflix loses here. I don’t think we are going into a recession, so I also think that Netflix stock looks attractive on the dip.
Visual search platform Pinterest has been killed during this market sell-off. From its early February highs, PINS stock has dropped about 35%.
The fears driving this sell-off are the same ones driving the Facebook sell-off. That is, investors are worried that the coronavirus crisis will curtail consumer spending, and that companies will respond by cutting back on ad spending. If so, that will mean less ad dollars for Pinterest.
That may happen. For a few weeks. But, come April or May, data and history suggest that the coronavirus crisis will be largely over. Consumers will get back to spending, because the labor market is strong and rates are low. Companies will respond by re-upping their ad spend. Pinterest will win more ad dollars.
All in all, then, this weakness in PINS stock is temporary.
Long term, this company has a huge platform of over 300 million users, and is in the early stages of monetizing those users. Over the next few years, the company will do just that. Revenues will roar higher. Net losses will turn into net profits. And Pinterest stock will soar.
Another big tech stock to buy on the market’s sell-off is Alphabet.
The technology giant has seen its stock drop 20% in a matter of days, marking only the third time in the past five years its done that. The other two times, Alphabet stock proceeded to rebound quickly as its underlying fundamental growth drivers in digital advertising and cloud remained strong.
I suspect this sell-off will play out no differently.
Ad spending trends will get hit for a few weeks, but once coronavirus fears fade, they will rebound, and with exceptional vigor because of the amount of fiscal stimulus in the pipeline. Same story for cloud spending trends. They’ll get hit for a few weeks, before rebounding in a big way when virus fears fade.
Rebounding ad and cloud spending trends will spark a comeback in GOOG stock.
Last, but not least, on this list of the best stocks to buy on the market’s sell-off is big data analytics company Splunk.
I like Splunk long-term for one very simple reason. Data is the future of enterprise decision making, and Splunk helps enterprise make sense of their data.
That is, enterprises have a ton of machine data these days. They want to leverage all that data to make better, smartest business decisions. But, doing so can be a challenge. In steps Splunk. Through its Data-to-Everything platform, Splunk has developed tools which help businesses collect, store, organize, and analyze their data.
Long term, as data becomes the most important thing in an organization, all companies will need a data analytics platform like Splunk. That means this company’s future is very bright.
Sure, demand for data analytics platforms may taper off a bit amid the coronavirus outbreak. But, it won’t affect the long-term growth narrative here. For that reason, long-term investors should considering buying into SPLK stock here, now that it’s 26% off recent highs.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango was long ADBE, ROKU, FB, and PINS.