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3 Stocks to Buy Ahead of the Next Market Crash

By Leo Sun – Updated Apr 15, 2020 at 8:24AM

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Square and two other high-growth stocks should be on your watch list.

The COVID-19 pandemic recently killed the 11-year-old bull market with a brutal market crash. It's unclear if the market has bottomed out yet, but uncertain times like these often mark the best times for long-term investors to buy stocks.

Investors who stayed bullish during previous market crashes, including the Great Recession, are likely sitting on some huge gains today. After all, the S&P 500 rallied more than 700% since 1990 -- even after factoring in four major recessions in the U.S.

Therefore, investors shouldn't avoid stocks due to fears of the next market crash. Instead, they should embrace market crashes, since they present opportunities to buy stakes of good companies at lower valuations. Let's examine three stocks you should consider buying ahead of the market recovery -- and the next market crash.

A stock chart with illustrations of floating viruses in the foreground.

Image source: Getty Images.

1. Square: A leader in the war on cash

Square (SQ 11.89%) provides online payment services, payment processing hardware, cloud-based management tools, and small loans to merchants across various industries. It also lets consumers make peer-to-peer payments, bitcoin purchases, and stock trades on its Cash App.

Square generated 45% of its gross payment volume (GPV) from smaller merchants with less than $125,000 in annualized GPV last quarter, which exposed it heavily to the COVID-19 pandemic as stay-at-home measures forced smaller businesses to close. The abrupt slowdown caused Square to reduce its guidance for the first quarter from 40%-42% year-over-year revenue growth to 36%-40%. It also pulled its full-year forecast.

However, Square noted that usage of its Cash App remains robust and that it would ease the pressure on smaller businesses by refunding subscription fees, offering bigger loans through Square Capital, and assisting merchants with new curbside pickup options and online resources.

Those efforts will inevitably weigh down its short-term earnings growth, but they could also increase the stickiness of its ecosystem and widen its moat against rivals like PayPal. Therefore, I believe Square will weather the current storm and emerge as a much stronger player in the "war on cash" over the next few years.

2. Amazon: Two growth engines firing on all cylinders

Amazon's (AMZN 4.50%) stock has remained resilient throughout the COVID-19 crisis since its core e-commerce and cloud businesses are naturally insulated from the pandemic. It generates most of its profits from its cloud platform Amazon Web Services (AWS), and those profits subsidize the growth of its lower-margin marketplaces.

Boxes in a warehouse.

Image source: Getty Images.

AWS is currently the largest cloud infrastructure platform in the world, and usage rates are likely spiking throughout the crisis as more people work from home, or spend more time streaming media, accessing cloud services, and playing games. People will also likely buy more essential products on Amazon as they comply with stay-at-home directives.

Amazon will inevitably face certain problems -- including safety issues at its warehouses, slower shipments, and logistics issues for third-party sellers -- but it will likely hold up better than most brick-and-mortar retailers. It still faces plenty of competitors, including Microsoft in the cloud and Walmart in retail, but it continually locks in customers with various strategies -- including AWS bundles, Prime subscriptions, and new hardware devices.

The COVID-19 crash has proven that Amazon is a great growth stock as well as a good defensive play, so it's smart to load up on more shares before the next market crash.

3. JD.com: The largest direct retailer in China

JD.com (JD 5.09%) is the largest direct retailer and second-largest e-commerce player in China. Unlike its rival Alibaba (BABA 4.55%), which merely connects buyers to sellers, JD takes on inventories and fulfills orders via a massive first-party logistics network -- which includes warehouse robots, drones, and driverless delivery vehicles.

The SARS pandemic in the early 2000s sparked JD's first phase of growth, as it shuttered its brick-and-mortar business and expanded its online business. It differentiated itself from Alibaba's Taobao and Tmall with strict quality control measures and secured a loyal base of annual active shoppers -- which grew 19% annually to 362 million last quarter.

JD's revenue rose 27% annually last quarter, and it expects "at least" 10% growth for the current quarter -- which bears the full impact of the COVID-19 outbreak in China. Alibaba expects its core commerce revenue to decline during the same period.

JD's resilience attracted big investments from Tencent, Walmart, and Alphabet's Google over the past few years. It will likely remain one of China's top marketplaces for the foreseeable future, which makes it a great stock to accumulate during market downturns.

 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon, JD.com, Square, and Tencent Holdings. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd., Alphabet (A shares), Alphabet (C shares), Amazon, JD.com, Microsoft, PayPal Holdings, Square, and Tencent Holdings and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short September 2020 $70 puts on Square, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$121.09 (4.50%) $5.21
JD.com, Inc. Stock Quote
JD.com, Inc.
JD
$52.04 (5.09%) $2.52
Block, Inc. Stock Quote
Block, Inc.
SQ
$62.41 (11.89%) $6.63
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
BABA
$84.11 (4.55%) $3.66

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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