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Got $1,000? Buy These 2 Stocks in a Market Correction

By Rekha Khandelwal - May 19, 2021 at 10:17AM

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Recent sell-offs have already made these fantastic growth stocks much more attractive.

The recent turmoil in stock markets may be far from over. The Nasdaq Composite Index (^IXIC 1.55%) is roughly 5% off its 2021 high. But while no investor is happy to see the value of their portfolio fall, a market correction can offer great opportunities to build positions in solid stocks that were previously expensive.

Two such great stocks to buy now are Enphase Energy (ENPH 1.02%) and Beyond Meat (BYND -2.35%). Notably, Enphase Energy stock is already off 44% its 2021 high, while Beyond Meat is down by 45%. The steep fall in Enphase Energy stock, however, looks like a minor correction considering that the stock surged more than 550% in 2020 and is up more than 2,000% in three years, even after the recent fall. In comparison, Beyond Meat stock is still up 55% since its IPO in May 2019. A further decline in the broader market may put further pressure on the prices of these two stocks, making them even more attractive. Let's consider why they could be long-term winners for your portfolio.

Power for the future: Enphase Energy

The global push toward clean energy has brought renewable sources firmly into the spotlight. With government support for renewable sources rising and the costs of electricity generation from them falling to competitive levels, the opportunities for companies in this sector are enormous. Renewable energy sources are expected to produce nearly half of the world's electricity by 2050. In particular, some analysts forecast that solar energy -- which currently accounts for just 3% of global electricity generation -- could contribute nearly 20% of the total by 2050.

Solar panel on blue sky background

Image source: Getty Images.

Top solar components supplier Enphase Energy should benefit from the demand growth driven by the new installations that will happen along the way. Enphase Energy manufactures microinverters that are attached to solar panels, converting the direct current (DC) those panels produce into the alternating current (AC) that flows through our electrical grid and into almost everything else with a plug. As the use of solar power increases, so too will demand for microinverters and similar products.

Enphase Energy has been performing extremely well in recent years, and has come a long way from the cash crunch it faced in 2016. In the first quarter, its revenue grew 47% year over year, while that of rival SolarEdge Technologies dipped 6%. Enphase Energy also generated a healthy non-GAAP gross margin of 41.1% for the quarter. 

Concerns relating to some near-term supply constraints that may hurt Enphase Energy's revenue growth over the next couple of quarters contributed to the stock's recent fall. Though Enphase stock's forward price-to-earnings ratio of 60 makes its look expensive, it isn't so considering its high expected earnings growth. The stock's forward PEG (price/earnings-to-growth) ratio is well below 1. A PEG ratio below 1 indicates it might be vheap relative to its growth prospects.

Overall, this is one solar company that looks set to grow in the long run. It is focused on keeping its costs under control while growing revenue. That sharp focus and its quality products have helped Enphase improve its margins significantly. As a top microinverter supplier, this approach should bode well for it in the future too.

Meat from plants: Beyond Meat

Beyond Meat aims to disrupt the meat business, which is worth $1.4 trillion globally. By comparison, so far, the meat-substitute market is worth just about $2 billion. However, it's growing fast. According to the Good Food Institute, plant-based meat sales grew by 18% in 2019.

Gourmet Plant-Based Meat Burger with Red Skin Fries

Image source: Getty Images.

Recognizing the public's increasing appetite for plant-based meat alternatives, leading food companies such as Tyson Foods have started rolling out more of them. Consumers' concerns about their health, the environment, and animal welfare are among the top reasons for the rising interest in meat substitutes.

Despite the intensifying competition, Beyond Meat is growing rapidly. Since the company's IPO in May 2019, the total number of outlets -- including retail and foodservice locations -- where its products are available has grown from 31,000 to 118,000. Sales grew 37% in 2020, and by 11% year over year in its latest reported quarter. Yet, it was below analyst expectations, contributing to the stock's fall.

The company's foodservice business continues to feel the impact of the pandemic, though that headwind should soon dissipate as widespread vaccine distribution allows more restaurants to resume somewhat normal operations. Beyond Meat has guided for revenue growth in the 19% to 32% range in its fiscal Q2.

The stock's forward price-to-sales ratio has fallen from more than 21 in January to nearly 12 now. Though that still looks expensive, it might be not so considering the company's growth rate. Prior to the impact of COVID-19, Beyond Meat's sales grew 170% in 2018 and 239% in 2019. Even if it manages to attain a fraction of those growth numbers, its valuation looks justified.  The decline in Beyond Meat's stock price this year, thus, offers long-term investors an attractive entry point into this top plant-based meat provider with a long growth runway.

Rekha Khandelwal has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Beyond Meat, Inc. The Motley Fool recommends SolarEdge Technologies. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Beyond Meat Stock Quote
Beyond Meat
$35.80 (-2.35%) $0.86
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$12,977.81 (1.55%) $197.89
Tyson Foods, Inc. Stock Quote
Tyson Foods, Inc.
$81.54 (1.05%) $0.85
Enphase Energy, Inc. Stock Quote
Enphase Energy, Inc.
$295.90 (1.02%) $3.00
SolarEdge Technologies, Inc. Stock Quote
SolarEdge Technologies, Inc.
$330.08 (3.47%) $11.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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