Despite the market's nearly uninterrupted march to new highs in 2021, history is quite clear that stock market crashes and steep corrections are a normal part of the investing cycle. It's not a matter of if a stock market crash is around the corner; it's simply a matter of when, and how steep the decline will be.
However, investors should also understand that each and every crash or correction in history has eventually been put into the rearview mirror by a bull-market rally. In other words, big moves lower in the market are commonplace, but these crashes and corrections always serve as an opportunity to buy great companies at a discount.
One of the best resources to find great companies to buy during a crash is your own portfolio. When the next crash does strike, I'll be looking to add to the following five stocks I already own.
One of the top stocks I'll be looking to increase my position in during the next crash is e-commerce giant Amazon (NASDAQ:AMZN). While Amazon may not have 10-bagger potential over the next five years like it once did, it may well be the one stock I'm most confident will head higher in the years to come as its operating cash flow skyrockets.
A stock market crash isn't going to change the fact that Amazon's marketplace is the unquestioned leading destination for online shoppers. Around 40% of all money spent online in the U.S. is expected to route through Amazon this year. Even though retail margins are generally razor thin, Amazon's success in signing up more than 200 million people globally to a Prime membership is offsetting some of its margin weakness and helping it to undercut brick-and-mortar retailers on price.
Market fluctuations also aren't going to impact cloud infrastructure spending, which is still arguably in the early innings of its expansion. Amazon Web Services (AWS) took in an estimated 32% of global cloud infrastructure spending in the first quarter ($13.5 billion, as reported by Amazon), according to Canalys. Since cloud service margins are substantially higher than retail margins and Amazon's other sales channels, AWS is its ticket to potentially tripling its cash flow by mid-decade.
The Original Bark Company
On the other end of the spectrum is the small-cap stock I'm most-excited to add to during the next crash, The Original Bark Company (NYSE:BARK), which you might know better as BarkBox. BarkBox specifically caters to dog owners.
As a longtime pet owner, I'm well aware of the fortune I've spent to keep my four-legged family members happy and healthy. According to the American Pet Products Association, close to $110 billion will be spent on companion animals this year. Not surprisingly, Bark has seen its revenue soar, with the company's monthly subscribers nearly doubling in the latest fiscal year to 1.2 million. Five years from now, Wall Street is forecasting a near-quintupling in sales.
Aside from Americans' love for dogs, Bark's secret sauce is its online presence and its innovation designed to lead to add-on sales. Despite its presence in 23,000 retail locations, the company's online-focused model is designed to keep overhead costs down and to sustain gross margins around 60%. Meanwhile, in addition to its core subscription offerings, the company introduced Bark Home and Bark Eats last year. These new programs provide basic-need goods like beds and leashes (Bark Home), or work with dog owners to create a specialized dry food diet (Bark Eats). Bark is high growth at a very reasonable price.
To state the obvious, a crash or correction will have no impact on the demand for Vertex's approved therapies. People don't stop getting sick just because the stock market hits a rough patch, which is what makes healthcare stocks such a rock-solid investment opportunity over the long term.
What makes Vertex special is the company's incredible success in bringing four generations of cystic fibrosis (CF) treatments to market. CF is a genetic disease characterized by thick mucus production that can obstruct the lungs and pancreas. While CF has no cure, Vertex has developed multiple treatments to improve lung function for CF patients. The newest therapy, Trikafta, was approved by the U.S. Food and Drug Administration five months ahead of its scheduled review date. Trikafta targets the most common CF mutation, F508del, which around 90% of patients have.
Since Vertex's CF franchise has a long growth runway, it's no surprise that the company is also sitting on a cash hoard totaling more than $6.9 billion. This capital will be used by Vertex for internal research, and could well be deployed to make acquisitions. You simply don't see biotech stocks that fit the definition of growth and value -- but Vertex fits the bill.
A steep correction or stock market crash will be my cue to add to my existing stake in Esports and gaming platform Skillz (NYSE:SKLZ). Like Vertex, I opened my position in Skillz not that long ago.
There's little question that the gaming industry is highly competitive. That's why Skillz avoided the costly development side of the equation and built a platform that allows mobile gamers to compete against each other for cash prizes. Skillz and game developers are then able to pocket a percentage of the cash prize. Since it's a lot cheaper to maintain a gaming platform than it is to develop a new mobile game and hope it's a hit, Skillz is consistently producing a gross margin of approximately 95%.
Skillz is also counting on a major partnership to fuel its growth. In early February, the company signed a multiyear agreement with the National Football League (NFL) that'll allow developers to create NFL-themed games for its platform. Football is the most-popular sport in the U.S., with games expected to hit the platform by no later than 2022.
Though it could still be a few years before Skillz is profitable, the growth in Esports events can't be overlooked.
The fifth stock I already own that I'll be looking to add to during a market crash is edge cloud services provider Fastly (NYSE:FSLY).
Why Fastly? The simple answer is that we're witnessing a significant shift in the way companies do business and people consume content. Although businesses were shifting online at a steady pace well before the pandemic, the coronavirus coerced companies and consumers to utilize the Web and/or cloud like never before. For Fastly, this has meant a demand surge in its content delivery services, which expedite and secure content to end users.
Although Fastly is losing money as it hires new people and reinvests in its platform, a number of key growth metrics are headed in the right direction. In each of the previous three quarters, existing clients spent 47% (Q3 2020), 43% (Q4 2020), and 39% (Q1 2021) more than they did in the previous year. Total customer count and average enterprise customer spending also continue to climb.
With digital content consumption becoming ever more prominent, Fastly shouldn't have any trouble maintaining a 20% or greater annual sales growth rate.