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.
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.
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.