Stocks to buy if the market fails: that’s the other side of the coin to the search query, is the market overvalued right now?
Pop that question into your favorite search engine and you’re bound to find endless opinions. Technically speaking, the S&P 500 index is trading at around 25X trailing-year earnings. That’s noticeably elevated from its longer-term average of approximately 19X. Here’s the thing, though. Over the past five years, the index has clocked in a multiple of 24.46X.
In that sense, the new normal implies that we’re right on target. On the other hand, the S&P 500 has gained nearly 12% since the start of the year. That seems rather optimistic amid multiple economic and geopolitical headwinds.
I’m not going to say the market is going to crash tomorrow. But you might want to earmark certain ideas to pick up on discount, just in case. Here are stocks to buy if the market fails.
Microsoft (MSFT)
A tech juggernaut that needs no introduction, Microsoft (NASDAQ:MSFT) makes a great case for stocks to buy if the market fails because of its ubiquitous nature. In almost any professional setting, knowledge of Microsoft Office programs – Word, Excel, PowerPoint, etc. – is required. It’s practically the language of business. Further, with the gig economy booming, the company’s Software as a Service (SaaS) offerings should see increased demand.
Plus, you can’t really argue with the financials. Between the second quarter of 2023 to Q1 2024, the company’s average positive earnings surprise hit 7%. That’s not the most remarkable performance. However, the takeaway is that Microsoft consistently does what it needs to do to keep shareholders happy.
On a trailing-12-month (TTM) basis, the tech giant is looking at net income of $86.18 billion on revenue of $236.58 billion. So far, its quarterly revenue growth rate (year-over-year) is trending at 17%. For fiscal 2024, experts see earnings per share reaching $11.79 on revenue of $244.93 billion. That’s up 20.2% and 15.6%, respectively, on a YOY basis.
Amazon (AMZN)
If you’re looking for stocks to buy if the market falls, you’ve got to look into Amazon (NASDAQ:AMZN). Yes, it’s for the obvious reason: the company utterly dominates the e-commerce space. Here’s why that’s important. Following the initial boom in online sales during the Covid-19 disruption, e-commerce transactions as a percentage of total retail sales fell. However, since Q2 2022, this metric has been rising.
Keep in mind that this trend accelerated during a time of rising inflation and also high borrowing costs. Frankly, e-commerce has taken over and Amazon is in the driver’s seat. The financials say it all. In the past four quarters since Q1 2024, the company’s average positive earnings surprise clocked in at 47.78%. Granted, the magnitude of the surprise has declined from 85.7% to 18.1%. Still, even with elevated expectations, AMZN delivers.
For fiscal 2024, experts believe EPS will hit $4.54 on revenue of $638.21 billion. That’s well above last year’s results of earnings of $2.90 per share on sales of $574.78 billion. At this point, who’s going to doubt the juggernaut?
Netflix (NFLX)
We all know that Netflix (NASDAQ:NFLX) utterly dominates the entertainment content streaming industry. Others follow, Netflix leads. It’s no wonder why shares have gained over 76% in the past 52 weeks. For that reason alone, NFLX is one of the stocks to buy if the market falls. However, looking at the issue more closely, I realized that consumer behavioral shifts will make this dominance difficult to usurp.
To make a long story short, inflation has impacted almost everything that we buy except one product category: televisions. Nowadays, you can buy a 70-inch flatscreen TV for a few hundred bucks, no problem. With such an immersive interface, the need to go to the box office (where ticket sales have soared) has diminished.
If you needed more convincing, the financials bring the dominance to light. Over the past four quarters since Q1, the company’s average earnings surprise came out to 8.43%. And that’s inclusive of a miss in Q4 2023.
Looking out to the end of this fiscal year, analysts project EPS of $18.44 on revenue of $38.72 billion. That would yield YOY expansion of 53.2% and 14.8%, respectively.
Broadcom (AVGO)
A global technology firm, Broadcom (NASDAQ:AVGO) designs and develops an array of semiconductor and infrastructure software solutions. It’s easily one of the stocks to buy if the market falls because of its broad relevancies. From networking solutions to wireless systems to services tied to storage (such as data centers), Broadcom is deeply interconnected with the digitalization of everything.
While AVGO stock might not have the excitement factor of other semiconductor plays, it’s a consistent performer. Last fiscal year, the company posted an earnings surprise of 2.78%. Again, that’s not anything to write home about. However, with the consistent earnings (it has printed TTM net income of $11.58 billion), it’s able to offer a forward dividend yield of 1.5%.
For fiscal 2024, analysts believe EPS will rise to $46.97 on sales of $50.39 billion. That’s a significant improvement over last year’s results of EPS of $42.25 on revenue of $35.82 billion. Next year, experts are targeting EPS of $57.11 with a top line of $57.32 billion. It should definitely be on your radar of stocks to buy if the market falls.
Eli Lilly (LLY)
A pharmaceutical giant, Eli Lilly (NYSE:LLY) offers myriad therapeutics addressing a wide range of diseases and conditions. Because of the permanent relevance of the underlying healthcare ecosystem, LLY naturally makes a strong case for stocks to buy if the market falls. However, LLY has also picked up interest for its weight loss drugs. Given the addressable market, the company enjoys a strong projected demand trajectory.
Financially, everything is pointed in the right direction. Over the past four quarters since Q1 2024, Eli Lilly’s average earnings surprise came out to 50.15%. To be fair, this metric spiked because in Q3 2023, the company posted EPS of 10 cents against an expected loss of 13 cents. The other earnings beats were much more modest. Still, that the company is beating expectations is a good thing.
On a TTM basis, net income stands at $6.14 billion on revenue of $35.93 billion. Its currently clocking in a 26% quarterly revenue growth rate. For fiscal 2024, experts are looking for EPS of $13.78 on sales of $43.07 billion. These numbers yield gains of 18% and 26.2%, respectively, against the prior year.
Exxon Mobil (XOM)
As an integrated oil and gas giant, Exxon Mobil (NYSE:XOM) might seem an odd case for stocks to buy if the market falls. Granted, the hydrocarbon sector seems anachronistic due to the push for green and sustainable energy infrastructure. At worst, Exxon carries controversies, both from its own history and the reputational cloud of the sector. Still, it’s a surprisingly strong idea.
As much as our political leaders would like to avoid hydrocarbons, that doesn’t seem realistic. Further, the booming sales of hybrid vehicles – which utilize combustion-powered engines along with battery packs – implies that big oil may enjoy an extended relevancy runway. Now, the numbers might not bear this out. In the past four quarters since Q1, Exxon’s average surprise fell half-a-percent below breakeven.
Further, fiscal 2024 projections don’t seem confident. EPS may land at $9.14 on revenue of $347.77 billion. That’s an earnings decline of 4% YOY, with the top line expanding only 0.9%. What gives?
With geopolitics raising the potential for oil supply chain disruptions, the high-side targets seem more legitimate. They stand as EPS of $10.68 on revenue of 435.21 billion.
Home Depot (HD)
A home improvement retailer, Home Depot (NYSE:HD) enjoys permanent relevance. Stuff always goes wrong in the house, making its stores an indispensable reality. Also, it’s worth noting that the explosive boom in real estate sales during the early Covid-19 years has likely expanded Home Depot’s addressable market. As new homeowners, people will soon realize that they – not their landlords – are responsible for the carnage of Murphy’s law.
Cynically, many homes were bought without contingencies. That probably means that new homebuyers will discover that their properties will end costing more than they bargained for. Bad for them, good for Home Depot. Financially, the company isn’t exciting in the least. Still, with an average earnings surprise of 2.15%, it keeps plugging away.
On a TTM basis, the retailer posted net income of $14.87 billion on revenue of $151.83 billion. For the current fiscal year, experts are looking at EPS of $15.29 on sales of $153.95 billion. These are modest numbers representing YOY gains of 1.2% and 0.8%, respectively. Nevertheless, you probably can’t go wrong with consistency.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
