Wall Street and investors have enjoyed an incredibly strong bounce from the March 2020 pandemic low. But over the past couple of weeks, they’ve been reminded in a not-so-subtle fashion that stock market crashes and corrections are a normal part of the investing cycle.
On the surface, crashes and corrections can be worrisome. They often occur without warning, and downside momentum can pick up fast. However, they’re also relatively short-lived. Whereas 24 of the past 38 double-digit percentage declines in the S&P 500 reached a bottom in 104 or fewer calendar days, bull markets are typically measured in years. Put another way, every stock market correction is a buying opportunity for the patient.
If you have capital ready to put to work during this stock market correction, the following surefire stocks appear ripe for the picking.
One thing that allows a stock to become a “surefire” long-term play is its industry dominance. Surgically assisted robotics company Intuitive Surgical (NASDAQ:ISRG) is a perfect example.
When the curtain closed on 2021, Intuitive Surgical had 6,730 of its da Vinci surgical systems installed worldwide (with most in the U.S.). This probably doesn’t sound like a large figure, but it absolutely blows its competition out of the water on a combined basis. This is a company that’s had more than two decades to build rapport with hospitals and surgical centers. Also, these da Vinci systems cost between $0.5 million and $2.5 million, not counting the time and money spent training surgeons how to use them. In other words, once Intuitive Surgical picks up a client, it tends to keep them for a very long time.
Aside from its sustainable first-mover advantage, Intuitive Surgical’s operating model is designed to improve operating margins over time. Throughout the 2000s, selling its da Vinci systems generated most of its revenue. However, these are complex machines that are pricey to build (i.e., they only produce modest margins). Over time, instruments sold with each procedure, as well as servicing on its da Vinci systems, have become the lion’s share of the company’s revenue. These are considerably higher-margin sources of sales. As the installed base of da Vinci systems grows, so should Intuitive Surgical’s operating margins.
Companies that are unique and offer true differentiation can be surefire winners once this stock market correction runs its course. That’s what makes data-mining company Palantir Technologies (NYSE:PLTR) such a smart buy.
The beauty of Palantir’s two-pronged growth strategy is that there simply isn’t another company like it. Palantir’s Gotham platform caters to the federal government and assists with big-data analysis and mission-planning. There’s also Palantir’s Foundry platform, which is geared toward global enterprise clients. Foundry is designed to help big businesses makes sense of their data in order to streamline their operations.
Over the past couple of years, there’s no question that Gotham has been the superstar. A number of key multiyear government contract wins have helped sustain Palantir’s sales growth at 40% or higher. But keep in mind that Gotham’s appeal outside the U.S. is limited (e.g., it would never be used by China). While big government contracts and backlogs are welcome, there is a ceiling for Gotham.
Over the long run, Foundry is Palantir’s biggest opportunity. In just the first nine months of 2021, the company’s commercial customer count skyrocketed by 135% from where it ended 2020. This is the sustainable double-digit growth opportunity that makes Palantir such a no-brainer buy.
Bank of America
Growth stocks aren’t the only eyebrow-raising bargains during this stock market correction. Highly profitable bank stocks like Bank of America (NYSE:BAC) are also smart buys.
For bank stocks like BofA, we’re entering the sweet spot of their growth cycle. The U.S. economy is bouncing back and the Federal Reserve seems intent on raising rates multiple times in 2022. No money-center bank is more interest-sensitive than Bank of America. In the company’s year-end quarterly results, it notes that a 100-basis-point parallel shift in the interest rate yield curve would result in an estimated $6.5 billion in added net interest income. Even if 100 basis points isn’t in the cards over the next 12 months, higher lending rates would allow virtually all of BofA’s added net interest income to flow to its bottom line.
As I’ve previously pointed out, Bank of America’s digitization initiatives are paying off, too. Over the past three years, the company’s active digital user count has grown by 5 million to 41 million, with 49% of all sales conducted online or via mobile app in the fourth quarter. That’s up 18 percentage points from the comparable quarter three years ago. Digital transactions are markedly cheaper than in-person and phone-based interactions, which has played a role in allowing BofA to consolidate some of its branches in order to cut costs.
Walgreens Boots Alliance
Have I mentioned that value stocks can offer surefire opportunities for patient investors? As the market corrects lower, deeply discounted companies like pharmacy chain Walgreens Boots Alliance (NASDAQ:WBA) become all the more attractive.
Typically, healthcare stocks are defensive in nature and somewhat impervious to recessions. Since we can’t control when we get sick, the demand for prescription drugs, medical devices, and healthcare services remains steady. But the pandemic really did a number on foot traffic into pharmacy chains, which is what hurt Walgreens. The good news is that this short-term pain has created an incredible buying opportunity for value investors.
Walgreens is executing a multipoint turnaround plan that’s seen it reduce its annual operating expenses by more than $2 billion a year ahead of schedule. At the same time, the company is aggressively investing in digitization initiatives designed to grow direct-to-consumer sales and drive-thru pick-ups. Even though sales at brick-and-mortar stores remain Walgreens’ bread and butter, online sales can provide a steady organic boost to revenue.
Additionally, Walgreens has partnered with (and invested in) VillageMD to open more than 600 full-service clinics co-located at its stores in over 30 U.S. markets by 2025. These physician-staffed clinics can funnel prescriptions right to Walgreens’ higher-margin pharmacy.
Palo Alto Networks
A fifth surefire stock investors can confidently buy during this market correction is cybersecurity company Palo Alto Networks (NASDAQ:PANW).
Products and services that have basic-need appeal are often smart buys when market volatility picks up. In the wake of businesses shifting their data online and into the cloud at a rapid rate, third-party cybersecurity solutions providers like Palo Alto are going to be called upon to a greater degree to protect that info. Remember, robots and hackers aren’t going to take time off just because Wall Street had a bad day.
What’s made Palo Alto such an intriguing buy is the company’s ongoing operating shift that emphasizes subscription services and next-generation solutions. Even though product sales have been increasing, physical firewall solutions tend to endure sales and margin lumpiness not seen with cybersecurity subscription services. With Palo Alto emphasizing subscription solutions, its operating margins should steadily improve.
The company also has a knack of making earnings-accretive bolt-on acquisitions. A regular dose of buyouts has helped Palo Alto Networks broaden its security portfolio, as well as reach new small-and-medium-sized businesses. Look for acquisitions to continue complimenting organic growth as a means of keeping annual revenue growth above 20%.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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