Ready or not, a stock market crash may be brewing.
We can't predict what will cause a crash, how steep the decline might be, or how long it will last. However, we know from history that crashes and corrections are normal parts of the investing cycle. Over the past 71 years, the widely followed S&P 500 has undergone a crash or correction totaling at least 10% on 38 separate occasions.
But there's good news. Every single crash or correction over the past seven decades has been an opportunity for investors to buy into great companies at a discounted price. The only question is which high-quality businesses you should buy.
When the next stock market crash rears its head, investors would be wise to consider growth stocks. Although value stocks have outperformed growth stocks over the very long-term, growth stocks have been running circles around value stocks since the end of the Great Recession. An eight-decade low for corporate tax rates and historically low lending rates have created the perfect conditions for growth stocks to aggressively hire, innovate, and acquire.
When the next crash arrives, consider buying into the following top-notch growth stocks.
If a market crash gives you the opportunity to scoop up shares of cybersecurity stock CrowdStrike Holdings (CRWD 1.09%) at a discount, you should absolutely jump on that opportunity.
Cybersecurity has almost become a basic need. No matter the state of the U.S. economy, hackers and robots don't take time off. Whether the system is on-premises or cloud-based, businesses need protection. The fact that more businesses than ever are pushing online in the wake of the pandemic is music to the ears of cybersecurity stocks.
CrowdStrike is unique for its cloud-native Falcon platform. Built in the cloud, Falcon can respond to threats faster and more affordably than on-premises solutions. Falcon also stands out for using artificial intelligence to improve at identifying threats over time.
Over the past 3.5 years, CrowdStrike has seen the percentage of clients that have at least four cloud module subscriptions jump from 9% to 61%. This leap suggests that CrowdStrike's products are well liked and that it's having no trouble scaling with its clients. Getting these existing customers to spend more is how the company has already achieved its long-term subscription gross margin target of 75% to 80%.
Another historically pricey stock that would be perfect to buy at a discount during a market crash is medical device company DexCom (DXCM -0.57%).
Medical devices are traditionally a commoditized, mediocre-margin part of the healthcare sector. However, DexCom isn't traditional. It focuses on the development of continuous glucose monitoring (CGM) systems for people with diabetes. Patients no longer have to prick their fingers several times daily; instead, they can have DexCom's subcutaneous sensor implanted to send real-time blood-glucose readings to a preferred wireless device. DexCom's CGM also links up with select insulin pumps to improve glycemic balance.
Beyond just saving lives, DexCom provides Clarity -- web-based software that allows patients and healthcare professionals to review blood-glucose readouts. It's personalized medicine without the doctor's office visit.
Innovation aside, the bull thesis is all in the numbers. According to the Centers for Disease Control and Prevention, 34.2 million people have diabetes in the U.S., and another 88 million are exhibiting symptoms consistent with prediabetes. Both figures continue to grow, which means DexCom's potential patient pool is on the rise.
Innovative Industrial Properties
The marijuana industry should offer some of the most impressive growth prospects this decade. If a crash or correction arises, consider putting money to work in fast-growing ancillary marijuana stock, Innovative Industrial Properties (IIPR 1.30%).
Innovative Industrial Properties is a cannabis-focused real estate investment trust (REIT). In simpler words, it buys cannabis cultivation and processing sites and leases them out for long periods. This allows IIP to earn rental income. It also generates modest organic growth via annual rental increases and a property management fee.
As of Feb. 8, Innovative Industrial Properties owned 67 properties in 17 legalized states, with 100% of its 5.8 million square feet leased out. The weighted-average remaining lease on these 67 properties is a cool 16.7 years. IIP is going to reap the rewards of highly predictable rental income for a long time to come.
Perhaps the company's top growth catalyst is its sale-leaseback program. Since U.S. multistate operators (MSOs) don't always have easy access to capital, IIP acquires property from MSOs for cash, and immediately rents it back to the seller. This sale-leaseback program has allowed IIP to rapidly grow its asset portfolio with reliable renters.
Lastly, should things go south with the stock market, back up the truck and buy into the company that's dominating the retail space: Amazon (AMZN -0.16%).
Nearly everyone knows Amazon, the third-largest publicly traded company in the U.S. by market cap. The company is expected to control 39.7% of all U.S. e-commerce in 2021, according to eMarketer. That's $0.40 of every $1 spent online in the U.S. going to Amazon this year.
Retail margins tend to be slim, but Amazon makes up for this with its Prime memberships. More than 150 million people worldwide have enrolled in Prime, supplying fee revenue that Amazon uses to help undercut brick-and-mortar retailers. This subscription model also helps keep consumers loyal to the Amazon ecosystem of products and services.
Amazon is also a top-tier cloud infrastructure provider. Amazon Web Services (AWS) grew sales by 30% in 2020, and the $12.7 billion in revenue generated in the fourth quarter implies an annual sales run-rate of $51 billion. Cloud margins absolutely trounce retail margins, which is why Amazon's cash flow is expected to triple by 2023 or 2024. In other words, one of the world's biggest companies still has plenty of room to run.