Being an investor in 2020 hasn't been easy. The uncertainty and panic created by the coronavirus disease 2019 (COVID-19) pandemic initially sent equities to their steepest bear-market tailspin in history. This was followed by one of the strongest quarterly rallies in a decade. Equities have been absolutely whipsawed, and it's investors' resolve that's been put to the test.
The thing is, history suggests another stock market crash may be brewing. Even though the stock market has a tendency to bottom out well in advance of an actual trough in the U.S. economy, historical data finds that there have been 13 sizable corrections or crashes following a bear-market bounce across the eight bear markets since 1960. In plain English, it's very likely we're going to see a 10% to 19% pullback in equities in the not-so-distant future.
What you might not realize is that this is actually good news. You see, every bear market decline has eventually been erased by a bull market rally. This means big declines in equities are almost always an opportunity for long-term investors to go shopping for bargains.
The big question is, what might those bargains be? If I were you, I would make sure not to overlook growth stocks, which are poised to outperform in this low-rate environment. As long as borrowing costs remain low, growth stocks are incented to aggressively expand.
With that being said, here are three high-growth stocks you should strongly consider buying during the next stock market crash.
It's certainly not an under-the-radar selection, but e-commerce giant Amazon (AMZN -1.44%) remains one of the best high-growth stocks you can buy during a stock market plunge.
Most folks rightly know Amazon for its online marketplace. According to an estimate earlier this year from analysts at Bank of America/Merrill Lynch, Amazon controls an absurd 44% of e-commerce in this country. In fact, demand from its core retail segment has been so strong that the company is considering taking over closed J.C. Penney and Sears locations to utilize as fulfillment centers.
Amazon has certainly become the blueprint for online retail success. Its lower overhead has allowed it to consistently undercut big-box retailers on price. Further, Amazon has enrolled well over 150 million Prime members worldwide. The fees collected from these Prime memberships adds even more of a price cushion for Amazon, while also helping to keep customers within its product and service ecosystem.
Also, don't overlook how important cloud computing has become for Amazon. Amazon Web Services (AWS) tallied $10.8 billion in sales during the COVID-19-impacted second quarter and, as usual, was responsible for the lion's share of Amazon's operating income. Because margins associated with cloud services are considerably higher than retail or ad-based revenue, AWS is the key to Amazon's rapid operating cash flow expansion in the years that lie ahead.
Another high-growth stock to consider piling into when the stock market crashes is surgical system developer Intuitive Surgical (ISRG -0.82%).
Healthcare stocks are among the smartest places to park your money when equities become turbulent. No matter how volatile things get, or how dire things might look for the U.S. economy, people don't get to decide when they get sick or what ailment(s) they develop. This creates a steady stream of demand for healthcare companies up and down the supply chain.
More specific to Intuitive Surgical, it's the undisputed leader in surgical-assisted robotics. Over the past two decades, the company has installed 5,764 of its da Vinci systems worldwide, which is far and away more than all of its competitors, combined. Best of all, its peers have faced delays in bringing their robotic systems to market, which means Intuitive's virtually insurmountable lead in assistive robotics is only going to grow in the years to come.
What's more, Intuitive Surgical is built on the razor-and-blade business model. In this instance, the company's pricey da Vinci system is the razor, and the instruments sold with each procedure, as well as the servicing performed on the da Vinci system, are the blades. Because the da Vinci system is so intricate, it's costly to build, and therefore generates only mediocre margins. The bulk of Intuitive Surgical's profits are generated by selling instruments with each procedure. Thus, as the company's installed base of systems grows, so does the percentage of revenue derived from these higher-margin channels.
There's no reason for investors not to expect long-term double-digit growth potential from Intuitive Surgical.
Investors would also be wise to scoop up shares of high-growth cybersecurity stock Okta (OKTA -3.48%) during the next stock market crash.
The beauty of cybersecurity stocks is that, similar to healthcare stocks, they're a basic-need good/service. No matter how well or poorly the U.S. economy is performing, hackers and robots don't take time off. This means businesses of all sizes need to be protecting their in-house and remote clouds from external threats. This leads to incredible safety in cash flow for cybersecurity stocks.
When it comes to Okta, investors are getting a company that's leaning on heavily on artificial intelligence and machine learning in the identity verification space. Though this might look as simple as providing two-factor authentication to access enterprise data, it's actually more complex than that. Okta's identity solutions are constantly learning and adapting to spot potential threats.
Okta's identity verification solutions also aren't built as one-size-fits-all packages. Instead, Okta has more than a dozen variable security solutions that it offers clients, with the expectation that a growing business will add on new solutions over time. This is why Okta's operating margins should see significant expansion throughout this decade, and why profit growth could outpace sales growth within the next couple of years.
And don't forget that Okta generates almost all of its revenue from subscriptions ($173.8 million of $182.9 million in total fiscal first-quarter sales came from subscriptions). Subscription revenue is highly transparent and predictable, and it usually leads to higher client retention rates.