It's not something investors like to think about, but stock market crashes and corrections are a normal part of the investing cycle and the price long-term investors pay for admission to one of the world's greatest wealth creators.
Over the past couple of weeks, the investment community has been given a stern reminder that stocks can go down just as easily and they move higher. The tech-heavy Nasdaq Composite has entered correction territory, while the benchmark S&P 500 is contending with its worst slide in more than a year.
While stock market corrections can be unnerving, they're also, historically, the perfect time to put money to work in the market -- especially if your average holding period is measured in years. Considering the broader market's propensity to head higher over the long run, buying the following four stocks during the current correction would be a genius move.
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Nio
Even though it's impossible for investors to predict when a stock will bottom with any accuracy, it's not nearly as difficult to identify companies with competitive advantages. Electric vehicle (EV) manufacturer Nio (NIO 7.99%) is one such company that's dazzled Wall Street with its execution and innovation.
Like most auto stocks, Nio was held back in the second and third quarters by semiconductor chip shortages. Thankfully, these supply issues have mostly cleared, which paved the way for the company to deliver more than 10,000 EVs in November and December. Nio is currently pacing an annual run rate of 130,000 EVs, but is expected to reach a run rate of 600,000 EVs by the end of 2022, according to management. The introduction of three new EVs, along with sales growth from its existing trio of vehicles, should propel sales significantly higher this year.
The company's management team also deserves credit for the introduction of the battery-as-a-service (BaaS) program in August 2020. The BaaS program allows buyers to charge, swap, and upgrade the batteries in their EVs. Additionally, enrollment in BaaS lowers the initial purchase price of Nio's EVs. In return, customers are paying a recurring monthly fee to Nio for the BaaS program. The company is effectively forgoing a small percentage of lower-margin near-term sales to generate predictable higher-margin long-term cash flow.
Despite Nio losing money as it ramps up production, the recent sell-off in shares represents the perfect buying opportunity for patient investors.
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Trulieve Cannabis
Among growth stocks, cannabis companies arguably offer the best value right now. Marijuana stocks have been pummeled for nearly a year, with President Joe Biden and the Democrat-led Congress failing to push any cannabis reform measures into law. But this correction marks an opportune time for investors to buy into a high-quality pot stock like Trulieve Cannabis (TCNNF 3.44%).
Trulieve is a multi-state operator (MSO) that's done things a bit different than most seed-to-sale operators. Instead of planting its proverbial flag in as many markets as possible, Trulieve has maintained a core focus on Florida's medical marijuana legal market. Despite operating 160 dispensaries in 11 states, 112 of these stores are located in the Sunshine State. Saturating the Florida market allowed Trulieve to gobble up half of the state's dried flower and oils market share, all while keeping its marketing costs down. The end result is more than three years of recurring profits (and counting).
The next step in Trulieve's rapid growth was taken on Oct. 1, 2021, when it closed the largest U.S. pot acquisition in history. The purchase of MSO Harvest Health and Recreation introduced Trulieve to new markets, as well as gave it the leading position in Harvest Health's home market, Arizona. The Grand Canyon State voted to legalize recreational weed in November 2020 and looks to be on track to eventually reach $1 billion (or more) in annual pot sales.
At close to 20 times Wall Street's consensus earnings for 2022, Trulieve is a budding bargain.
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Upstart
Another genius move for long-term investors would be to buy shares of cloud-based lending platform Upstart (UPST 2.06%), which have been taken for a wild ride over the trailing six months. After quadrupling in value in three months, shares are now down nearly 80% from their peak.
The big concern for Upstart is that higher lending rates will reduce demand for everything from personal loans to mortgages at the bank level. Since more than 90% of the revenue Upstart brings in comes from banks or servicing fees, there's obvious concern of a lending slowdown.
Yet even with this concern on the table, Upstart's artificial intelligence (AI)-driven lending platform has all the tools needed to continue growing at a double-digit, industry-topping rate. Relying on AI and machine learning to help determine the creditworthiness of loan candidates is resulting in faster approvals and lower costs for lenders. In other words, it's going make Upstart's solutions even more popular among financial institutions.
Something else to consider is that Upstart has just begun scratching the surface with the potential for its AI-powered lending platform. Most of its services have historically been focused on personal loans, which is an $81 billion market, according to TransUnion. But following the acquisition of Prodigy Software, Upstart has pushed into auto lending. The total addressable market for auto loans is about eight times the size of personal loans.
With Upstart profitable and blowing away Wall Street's profit expectations, it has the look of a no-brainer buy.
Image source: Getty Images.
Redfin
A final genius move investors can make during this stock market correction is to buy shares of tech-driven real estate company Redfin (RDFN 7.62%).
Similar to Upstart, shares of Redfin have been battered on worries of higher interest rates. Since mortgage rates tend to closely mirror the movement of the 10-year Treasury bond, higher rates are likely to quell some homebuying and selling activity.
In spite of these concerns, mortgage rates are expected to remain well below their historic average for years to come. While there could be an initial knee-jerk reaction to higher mortgage rates, there will still be plenty of incentive for homebuyers to take the plunge.
What makes Redfin so attractive is the cost savings and personalization it can provide, relative to traditional real estate companies. For instance, whereas most realty companies charge a commission/listing fee ranging from 2.5% to 3%, Redfin charges 1% or 1.5%, depending on how much previous business has been done with the company. Based on a median existing home sales price of $358,000 in December 2021, according to the National Association of Realtors, a Redfin seller could be banking more than $7,100 in savings versus a traditional realtor.
Aside from cost savings, Redfin's personalized services are also driving users to the platform. The company's Concierge service helps with staging and projects to maximize the selling value of a home. Meanwhile, its RedfinNow program, which operates in select cities, purchases homes in cash and removes the hassles of selling a property.
Expect Redfin to continue gobbling up U.S. existing home sales market share for the foreseeable future.
