This has been a year like none other for the investment community. In a roughly six-month span, Wall Street crammed in the steepest and quickest bear market decline in history, as well as the fastest rebound from a bear market low to record highs. Perhaps the only constant in 2020 has been the inability to predict short-term stock movements with any long-lasting success.
But just because equities have ascended to new all-time highs doesn't mean volatility has been put to bed. Late last week, equities "hiccuped" after a multi-month rally, with the technology-heavy Nasdaq Composite shedding more than 6% of its value in two days and the broad-based S&P 500 losing over 4% in the same stretch.
Image source: Getty Images.
Volatility can be a double-edged sword. If you're a long-term investor, volatility is actually great news. That's because it allows you to buy into great companies at a perceived discount. As long as your intention is to hold for multiple years and trust your investment theses, a little near-term volatility isn't a concern.
Then again, if you're a short-term investor or day trader, volatility can be a temptation, but also a nightmare.
Online investing app Robinhood, which is well-known for its commission-free trading platform and gifts of shares to new members, has been particularly adept at attracting these shortsighted investors. The average Robinhood customer is in their early 30s and has limited knowledge of investing in equities. Worse yet, the platform doesn't appear to provide the tools necessary for young investors to succeed. As a result, Robinhood's leaderboard (i.e., the most-held stocks on the platform) is a smorgasbord of penny stocks, awful companies, and whatever stocks Wall Street is chasing this week.
But it doesn't have to be this way. Robinhood investors have access to fractional share purchases, so they don't need to start with a fortune to make one. They simply need the discipline to trust their investment theses over the long run and to understand the opportunities stock market crashes and corrections present.
If last week's stock market dip were to turn into a full-fledged correction or crash, Robinhood investors would be wise to consider buying into the following three stocks.
Image source: Facebook.
One of the smartest moves Robinhood investors can make is to purchase shares of the dominant social media company on the planet, Facebook (META -10.56%).
Perhaps the most amazing stat I can offer about Facebook is this: During the pandemic-impacted second quarter, this almost entirely ad-based company still managed to grow advertising revenue by a double-digit percentage. Facebook draws in 1.79 billion people each day, and the platform has 3.14 billion family monthly active people (including Facebook's other owned social media sites). Advertisers fully understand that they can't go anywhere else and reach so many eyeballs at once, which is what gives Facebook the upper hand when it comes to ad pricing power. This summer's ongoing advertising boycott didn't seem to have much of an impact.
Another crazy thing to consider is that Wall Street forecasts that Facebook will generate approximately $80 billion in revenue this year, even though the company isn't anywhere close to fully monetizing its family of products. The lion's share of this revenue is derived from ad placement on Facebook and Instagram. The company has yet to scratch the surface on monetizing Facebook Messenger or WhatsApp. Facebook owns four of the seven most-visited social media sites and is only generating significant revenue from two of them.
Facebook also has opportunities to expand its revenue channels beyond advertising. The company already offers payment service Facebook Pay. Plus, Facebook may be the perfect platform to host some sort of paid streaming service in the future.
If a stock market crash occurs, scooping up shares of Facebook could be a smart move.
Image source: Getty Images.
Freshpet
Buying shares of organic and natural pet food maker Freshpet (FRPT 0.36%) is another relatively surefire way for Robinhood investors to put their money to work if the stock market crashes.
All eyes might be on high-growth work-from-home trends like cybersecurity and cloud computing, but it's the pet industry that's been the unbreakable rock for more than a quarter of a century. Data from the American Pet Products Association finds that year-on-year expenditures on companion animals haven't declined for at least 25 years, with spending in 2020 expected to hit $99 billion -- $38.4 billion of which will be spent on food and treats.
We're witnessing the same trends in the pet food realm as in traditional grocery stores. Pet owners are willing to spend more on organic and natural foods for their pets if doing so leads to a higher quality of life. Just as organic human foods in grocery stores have been a significant source of growth, so has Freshpet's focus on higher-quality foods and treats.
Despite facing one of the ugliest quarters for U.S. economic growth on record, Freshpet's second-quarter sales surged 33% to $80 million. Freshpet is benefiting from the introduction of new products, access to more retail locations, an increase in repeat customers, and juicier margins associated with its pricier organic and natural products.
After generating $246 million in full-year sales in 2019, Freshpet is expected to more than double its revenue to north of $600 million by 2023. In other words, it's a growth stock with both bark and bite for investors.
Image source: Getty Images.
DexCom
Robinhood investors would also be wise to pick up shares of medical device maker DexCom (DXCM 0.10%) if the stock market crashes.
DexCom is best known for manufacturing and selling continuous glucose monitoring (CGM) systems used by diabetics. The potential patient pool for DexCom's CGM's is massive. The Centers for Disease Control and Prevention estimates there to be 34.2 million diabetics in the U.S., with another 88 billion showing prediabetic symptoms. These statistics alone suggest incredible growth opportunity in maintenance and applied health signal devices for diabetics.
Just how good has DexCom's growth been? Full-year sales rocketed from $49 million in 2010 to $1.48 billion by 2019. According to Wall Street, DexCom seems on track for ongoing compound annual sales growth of roughly 20% through at least 2023. That'll take its full-year sales to around $3.3 billion and more than likely result in an expansion of the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) margin.
Although DexCom's stock remains pricey, its large patient pool and cutting-edge innovation support its premium. As long as the number of diabetic patients who could benefit from a CGM device continues to grow, DexCom's market share has nowhere to go but up.
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