As scary as market turbulence can be, the best investors know that when stocks take a plunge, there's money to be made. It isn't every day that you get to buy shares of great companies at a discount, and making the right moves in the aftermath of a crash can supercharge your portfolio's returns.
In this vein, crashes are an especially attractive time to buy rapidly growing stocks, as their prices will be freshly deflated from their potentially speculative highs. Similarly, dividend stocks are no-brainer buys after a crash, as investors get a higher yield for their dollar. Today, I'll be discussing one good option from each of these two categories -- and keeping my eye out for a day when I can scoop up their shares.
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1. Moderna
Moderna (MRNA -4.36%) is a household name thanks to its blockbuster coronavirus vaccine, and it's also one of the hottest stocks of this year. Its messenger RNA (mRNA) maven won Moderna a whopping $1.7 billion out of the company's $1.9 billion in total revenue during the first quarter. Management is already intent on throwing the vaccine proceeds into the next big thing by building out its pipeline and advancing more projects through clinical trials.
Given that most of the world remains unvaccinated against the coronavirus, it's hard to see how the company could fail to keep selling vaccines at a wild pace for at least the next year or two. If it turns out that a booster regimen of coronavirus jabs will be necessary, investors can be sure the company is positioned to profit. And after such a run of success, it's safe to say Moderna will be a powerful force in the biotechnology industry for quite some time.
It's this expectation of safety that could make it a counterintuitively risky investment in the near future. The market has likely priced in Moderna's newfound stardom as well as its ongoing rapid growth. So, if the company's earnings reports are great, but not as exceptional as many expect, its stock could become a victim of its own success. As time passes and competition in the coronavirus vaccine market grows more intense, that outcome will become more and more likely to occur. In contrast, after a crash, its value may be underestimated, especially if its rapid growth appears to be slowing.
In short, the main reason Moderna is worth buying if a crash comes is that it's a proven biotech. The fact that it is currently a bit overpriced across several metrics is thanks to its vaccine home run: Its trailing price-to-sales multiple is about 23, which is much higher than the biotechnology industry average of 8.09. Investors who buy the stock today could probably be getting more bang for their buck elsewhere, but this reality shouldn't scare you away forever. After a crash brings Moderna's share price back down to earth, that's much less likely to be the case.
2. Abbott Laboratories
The case for buying Abbott Laboratories (ABT -0.51%) after a correction or crash is a bit different than the case for Moderna. Abbott Labs' business is extremely broad, and it makes everything from continuous glucose monitors to coronavirus diagnostic tests, not to mention surgical tools and consumer health products. For many of these product categories, the company experiences very consistent levels of demand over time. Consistent demand is advantageous because it means that its free cash flows are also very consistent, which creates the financial strength necessary to pay a dividend.
Abbott's dividend yield at the moment is around 1.37%, which is nothing special at first glance. In the event of a crash, the yield would rise, which would make the stock more attractive. And, stocks that pay dividends tend to be somewhat less volatile than those that don't, meaning that the company could be better protected against residual turbulence. But more important than that is the fact that Abbott's dividend payment has risen consecutively for the last 49 years in a row, bringing it very close to Dividend King status.
At present, there's no indication of anything that could interrupt this streak, especially given that Abbott's quarterly earnings are expanding at a stunning 217.9% year over year. Its free cash flows have increased by nearly 58% in the last three years alone. Thus, buying the stock when it's down after a market collapse means that investors lock in the cumulative impact of future dividend increases while also securing a higher yield.
