More money is lost in the stock market trying to predict when a drop will occur than in the actual fall. So trying to time the market is a loser's game. The best approach, therefore, is to invest some cash at regular intervals and with a long-term mindset in order to take advantage of whatever stock price fluctuations occur.
But there should always be companies on your watch list that you're ready to buy if prices become more attractive. The three stocks below should prove to be outstanding additions to your portfolio if they take a dip.
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1. Chipotle Mexican Grill
As the leader of the fast-casual dining movement, Chipotle Mexican Grill (CMG 1.07%) has been a huge winner. Same-store sales in the most recent quarter soared 31.2% vs. the prior-year period, and the restaurant-level margin of 24.5% was the highest it's been in nearly six years.
The business leaned heavily on its digital capabilities during the pandemic, something that's still working well today. Digital revenue, which includes orders from Chipotle's website, mobile app, and third-party delivery services, accounted for 48.5% of total revenue in the quarter. And of the 56 new restaurants it opened in the second quarter, 45 came equipped with a drive-thru lane, otherwise known as a Chipotlane. The ability to serve hungry customers in whatever ways are most convenient for them has served the business extremely well and will continue to in the future.
CEO Brian Niccol is very optimistic. "We remain confident in our key growth strategies and believe that over the longer term, they will allow us to have 6,000 restaurants in North America," he said on a recent earnings call. The company currently operates 2,853 stores, so that's a sizable opportunity in the years ahead.
The stock trades at a forward price-to-earnings ratio of 72, which in my view provides investors no margin of safety even when considering management's long-term growth outlook. Keep tabs on Chipotle shares and wait for a meaningful pullback.
2. The Joint Corp.
With a total of 633 clinics nationwide as of June 30, The Joint Corp. (JYNT 1.86%) is disrupting the chiropractic industry by offering a consumer-friendly and cost-effective approach to handling back pain. In 2020, the company treated 1.1 million unique patients who didn't need insurance, didn't have to schedule an appointment, and paid an average of $29 per visit. This innovative business model is working as sales jumped 64% year over year in the second quarter.
It is estimated that $90 billion is spent every year by people trying to solve back-pain issues. The only problem, though, is that 50% of Americans don't even know what the word "chiropractic" means. The Joint Corp. is seeking to solve this serious market deficiency by attracting recently graduated chiropractors looking for work and entrepreneurial franchisees seeking an attractive investment opportunity. During the second quarter, a record 63 franchise licenses were sold, and there are now 282 active clinics in development.
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Management thinks that the U.S. has the potential for 1,800 locations -- triple its current level. The domestic chiropractic industry is highly fragmented and dominated by independent offices, with chains making up just 3% of the total market. This gives the Joint Corp. a long runway for expansion.
After skyrocketing almost sixfold over the past 12 months, The Joint Corp.'s stock has had a truly extraordinary run -- and trades for a hefty 18 times forward sales. So for now, investors would probably do well to wait for a better time to get into this promising company.
3. Square
Fintech favorite Square (SQ 5.04%) operates a lucrative, two-sided platform consisting of 40 million active Cash App users and millions of merchants in its ecosystem. Each business segment grew gross profit in excess of 85% in the second quarter, and Square processed a whopping $42.8 billion in gross payment volume (GPV).
Square allows Cash App customers to set up direct deposits, send money to friends, spend their balances, and even invest in stocks or Bitcoin. And on the seller side, merchants can use a full suite of software, hardware, and financial services to make running their small businesses easier. Because the company becomes more important to its customers over time with the introduction of new features, it's very unlikely users will switch to a new service.
What's more, the company is benefiting from a "network effect" where the more that consumers use the app, the more sellers want to use it too -- and vice versa. And that is all helping propel the company in the booming fintech space.
Square's recent acquisition of "buy now, pay later" leader Afterpay only strengthens the connection between the two sides. Users of Afterpay can purchase items now and pay them off over time. Square plans to integrate the Australian fintech's 16.2 million consumers and 98,000 merchants onto its platform, adding another useful payment option to drive higher GPV growth.
Although Square's stock is down recently, a bigger drop from here would make buying shares a no-brainer for investors. This is a thriving business that has some significant advantages, and you shouldn't hesitate to consider scooping up shares when the opportunity presents itself.
