When stock prices nosedived in late February and much of March, they reflected the overall fears of the nation (and the world) about the real damage that could be caused to people and to the economy by the coronavirus pandemic. While that potential for true harm was fulfilled in some ways and for some people, others adapted and/or managed the situation and things have somewhat improved. For instance, that early nosedive on stock prices presented an excellent buying opportunity for more intrepid investors as many of those lowered prices quickly rebounded to new highs.
Still, there is real uncertainty about the economy as we approach 2021 and some analysts aren't as bullish about a full recovery as the markets might lead some to believe. These analysts are saying that the market does not match the actual economic situation the country finds itself in and another market correction (or potentially a crash) is still quite possible and could happen soon.
If the market crashes, Amazon (NASDAQ:AMZN), Peloton Interactive (NASDAQ:PTON), and Lemonade (NYSE:LMND) will be great stocks potentially trading at a discount to their current prices. They look expensive right now, but they're excellent companies, and investors should grab them should a market crash opportunity arise. Here's why.
1. Amazon: Setting the pace for e-commerce
Amazon accounts for a whopping 52% of all U.S. e-commerce, according to Statista. It's always been a high-growth company, but it outdid itself during the pandemic when it rose to the task of delivering America's essentials.
In the third quarter ending Sept. 30, net revenue increased 37%, and the company is forecasting 28% to 38% growth in the fourth quarter. The fourth quarter includes the holiday season and is typically retail's best quarter.
Amazon has expanded its range of services from retail digital sales to several other businesses, which gives the company a long runway toward growth. Amazon Web Services, which provides cloud computing services, grew 29% in the third quarter and accounted for 13% of the company's total revenue. It is a high-margin business with a growing margin, contributing about half of Amazon's total operating income in the third quarter. That helped the company with its e-commerce expansion efforts, which cost $2.5 billion in the third quarter alone. The mega-retailer is also trying its hand at storefronts, which it has been aggressively working at to get a piece of the huge retail grocery pie.
Despite its high price tag, Amazon is trading at 96 times trailing 12-month earnings, which is high when compared to the broader market, but lower than the stock has traded historically, which makes it a buy even today. With the stock currently trading above $3,200 per share, the price might seem high for many investors, but fractional share purchases will still allow those investors to benefit from the likely growth this company still has in it, regardless of a market crash.
2. Lemonade: Challenging traditional insurance companies
Lemonade was one of the hot initial public offerings (IPOs) of 2020, shooting up nearly 200% in the first weeks of trading to around $85 a share. It fell back partially for a few months after that early July IPO, but it is now trading at over $107 a share. There's no price-to-earnings ratio because the company has yet to report earnings, but it's currently trading at a pretty unreasonable 56 times sales.
The company operates on the simple premise of offering insurance policies (currently home, rental, and pet insurance). But its operational model offers a new approach to an old industry. It uses artificial intelligence analysis to assess potential policyholders and the claims that actual policyholders make, generating quick (and generally accurate) quotes and claim settlements. Automated services handle about 30% of claims without any human input. This has helped Lemonade often approve claims within three minutes of filing and made it a hit with customers.
Lemonade is a disruptor that is revolutionizing an industry that hasn't changed much in decades, and it has huge potential. Gross profit increased by 83% in the third quarter. The gross loss ratio in the third quarter, which measures how much of each policy premium gets spent on claims, decreased over the prior year, as it also did in the second quarter.
Lemonade operates in half of the states in the U.S. and in several European countries. It launched in France in early December, and it has plenty of growth opportunities, regardless of how the broader market or the economy fares.
3. Peloton Interactive: Changing the way we work out
Peloton has had an outstanding year, taking full advantage of pandemic-induced opportunities. It's ending 2020 with a bang, announcing just before Christmas that it is acquiring commercial fitness equipment company Precor.
The connected fitness company made a splash when it debuted its IPO in 2019, and those who bought shares then have seen the stock price rise roughly 450% just in 2020. It's trading at a massive valuation of almost 550 times trailing-12-month earnings.
What's so exciting here? Peloton is the future of fitness. It sells exercise equipment that connects to live classes as well as subscriptions to those classes. It was growing before the pandemic, but it was starting to show signs of slowing down. When lockdowns and social distancing became the new normal, however, things began to heat up again. In the fiscal 2021 first quarter, which ended Sept. 30, revenue increased 232% year over year and paid digital subscriptions were up 382%.
Peloton is taking the ball and running, to use a sports metaphor. One problem the company has had recently is a backlog of orders that it couldn't meet. That may have precipitated interest in the Precor deal, since Precor has U.S. manufacturing facilities. Owning Precor also opens Peloton up to commercial markets, specifically universities, hotels, and corporate campuses.
The company is launching cheaper products and expanding its reach beyond its typical customer that has plenty of disposable income. That gives it greater potential to keep up its phenomenal growth even after the pandemic. It also gives it more ways to produce sales even in a more typical economic downturn. Investors are confident in the company's prospects despite the high valuation, and if the stock does go on sale it's a great bet for further high growth.