You might not like what I'm about to say, but history says it's a fact: Stock market crashes are inevitable.
Over the past 71 years, the benchmark S&P 500 has undergone 38 corrections and crashes that led to a double-digit decline in the index. For you math-phobes out there, this works out to a double-digit decline once every 1.87 years. Crashes are common, and there are always catalysts waiting in the wings to send the market screaming lower.
For example, the Shiller price-to-earnings (P/E) ratio for the S&P 500 -- a measure of the average inflation-adjusted earnings from the previous 10 years -- nearly hit 36 this week. That's well over double the 150-year average of 16.8. What's more, the previous four times the S&P 500's Shiller P/E ratio topped (and sustained) 30, the index lost a minimum of 20%.
Additionally, margin use among retail investors is up. According to a Harris poll released in September, 43% of retail investors are relying on leverage, whether that means buying on margin or using options in an attempt to time the market. If things get moving in the wrong direction, margin calls could seriously hurt the stock market.
But there's good news here, as well.
Each and every stock market crash and correction in history has proved to be a buying opportunity for long-term investors. Eventually, a bull market always erases a correction or bear market decline. With this in mind, the following three unbeatable growth stocks would be the perfect buys if the market crashes.
On a macro basis, there should be a double-digit annualized growth opportunity for cybersecurity companies throughout the decade. Businesses were already moving their data into the cloud well before the coronavirus pandemic hit. The past year has simply accelerated an existing trend and generated even more demand for third-party solutions.
What makes CrowdStrike such a stud is the company's Falcon security platform. Falcon is cloud native, responsible for overseeing more than 3 trillion events each week, and is leaning on artificial intelligence (AI) to grow smarter over time. In layman's terms, Falcon can respond to potential threats much faster than in-house security solutions, and in many cases, it can do so at a cheaper overall cost.
What's become readily apparent is that CrowdStrike's clients love the product. Over the past 15 quarters (three years, nine months), the percentage of customers with at least four cloud module subscriptions has catapulted from 9% to 63%. What's more, the company has a 12-quarter streak of its dollar-based retention rate topping at least 123%. This means existing customers are spending at least 23% more year over year on subscription services. That's not a surprising figure when you realize that 98% of clients are retained year over year.
But possibly the craziest thing of all about CrowdStrike is that the company's long-term subscription gross margin target of 75% to 80%-plus has already been achieved, despite the company still being in the early innings of its growth. CrowdStrike has all the makings of a dominant force in cybersecurity solutions.
Another growth stock investors can comfortably pile into during a stock market crash is telemedicine giant Teladoc Health (TDOC 5.65%).
As you might have rightly guessed, Teladoc benefited in a big way from the coronavirus pandemic. With physicians and hospitals aiming to keep potentially infected patients and people with chronic health conditions in their homes, the medical community turned in big numbers for virtual visits. In total, Teladoc handled just shy of 10.6 million virtual visits in 2020, up from 4.14 million visits in the prior-year period.
The big question is: Can Teladoc's growth continue in a post-pandemic environment? The answer is highly likely to be yes. That's because telehealth is extremely convenient for patients and can help physicians better monitor chronically ill patients. Best of all, virtual visits are usually billed at a lower rate than office visits, which makes telehealth an instant hit with health insurers.
Teladoc's acquisition of leading applied health-signals company Livongo Health also gives it a competitive edge. Livongo is a data-driven company that relies on artificial intelligence (AI) to send its subscribers tips and nudges to help them lead healthier lives. Livongo has secured more than 500,000 diabetics as subscribers and has plans to expand its service to cover hypertension and weight management. In my estimate, Livongo's services could encompass in the neighborhood of 40% of the U.S. population.
As a combined entity, Teladoc and Livongo have the ability to cross-sell, too. With both companies working toward personalizing the care process and improving care oversight, Teladoc looks like a good bet to be one of the fastest-growing healthcare stocks of the decade.
Finally, when the stock market crashes next, don't be afraid to pull the trigger on shares of e-commerce kingpin Amazon (AMZN 4.03%).
If you're noticing a trend here, it's that many of the fastest-growing companies benefited from the pandemic -- more specifically, the shift toward online consumption or data storage. Last year, Amazon registered $386.1 billion in sales, which represents an increase of $105.6 billion, or 38%, from the prior-year period. No one on Wall Street is used to megacap companies growing this robustly.
One reason Amazon is such a successful company is its sheer dominance of online retail. According to eMarketer, Amazon's U.S. online retail share is expected to jump 100 basis points to 39.7% in 2021. Put another way, $0.40 of every $1 spent online in the U.S. is routed through Amazon.
Even though retail margins are nothing to write home about, this sheer dominance has helped the company sign up well over 150 million people worldwide to a Prime subscription. The fees Amazon generates from Prime help it to undercut brick-and-mortar retailers on price.
Amazon is also a leader in cloud infrastructure services. Amazon Web Services (AWS) grew sales by 30% in 2020 -- i.e., during the worst economic downturn in decades. Despite accounting for only 11.8% of total sales last year, the exceptionally high margins associated with cloud infrastructure helped AWS bring in $13.5 billion of Amazon's $22.9 billion in operating income. As AWS grows into a larger percentage of total sales, operating cash flow is going to soar.
After regularly being valued at between 23 and 37 times year-end cash flow, Amazon's current share price has it on pace for a multiple relative to cash flow of sub-15 in 2023. That makes it a bargain you'll want to scoop up on any major dip.