Over its entire history, the stock market has kept rising in value, enriching countless investors. It has never gone up in a straight line, though -- zoom in on any long-term graph of the stock market over time and you'll see a jagged line. There are always ups and downs.
The prospect of a market downturn might make you nervous, but smart investors will simply expect occasional corrections and crashes, and if possible, will snap up shares of companies they want to own, since many will be trading at a lower and more attractive price.
Image source: Getty Images.
Here are three promising companies to consider adding to your portfolio if they drop to an attractive entry point in a market pullback.
1. Netflix
Netflix (NFLX 1.74%) has been on a tear for many years now, having adapted well to changing times when it pivoted from specializing in DVD rentals to become a major force in streaming entertainment. It recently boasted 222 million paid memberships in more than 190 countries. The letter to shareholders that accompanied Netflix's fourth-quarter earnings noted, "We achieved several milestones in 2021: we had the biggest TV show of the year (Squid Game), our two biggest film releases of all time (Red Notice and Don't Look Up) and Netflix was the most Emmy-winning and most nominated TV network and the most Oscar-winning and nominated movie studio of 2021."
The quarter also featured revenue up 16% year over year, and more than 8 million new net memberships. That was disappointing to some, and management didn't have a good explanation for the slowing growth, but the company has been executing well, and it's turning cash flow positive. There's still a lot to like about Netflix. The stock sank some 37% in January, and a further drop due to a market pullback will make it even more appealing.
2. Sea Limited
Sea Limited (SE -0.69%) is another stock that had a bad January, falling nearly 33%. The company is not for the faint of heart, and a golden future is not assured as it's a relatively richly valued growth stock that features rapid top-line growth but no profitability yet.
Still, Sea Limited is worth watching and considering -- especially if a market pullback brings its shares down much further. With a recent market value of $87 billion, it's a force in Asia, operating in multiple promising fields. As the company describes itself:
We operate three core businesses across digital entertainment, e-commerce, as well as digital payments and financial services, known as Garena, Shopee, and SeaMoney, respectively. Garena is a leading global online games developer and publisher. Shopee is the largest pan-regional e-commerce platform in Southeast Asia and Taiwan. SeaMoney is a leading digital payments and financial services provider in Southeast Asia.
Sea's third quarter featured revenue up 121.8% year over year, under generally accepted accounting principles (GAAP), with operating income up 147.5%. That's all very good and promising, as are the company's plans to expand into Latin America and Europe -- but until it turns reliably profitable, it warrants some caution. Companies sometimes fail when they try to do too much and end up without the resources to fully achieve their goals.
That said, do your own digging into this very popular stock to see what you think.
Image source: Getty Images.
3. Zoom Video Communications
Zoom Video Communications (ZM -0.99%) has nearly become a household name with its popular Zoom video conferencing technology that's widely used by businesses and consumers alike. The pandemic served as a very strong tailwind, and while some wonder whether the end or waning of the pandemic will be bad news for Zoom, there's reason to think it won't be.
For one thing, video conferencing seems here to stay, especially as more workers work remotely by choice. The company has been innovating, adding more features to its video conferencing product, too, which should help it attract and retain more users. Zoom also has other irons in the fire -- such as its Zoom Phone technology for businesses. In less than three years, Zoom Phone is operating in more than 40 countries and has sold more than 2 million "seats."
Zoom has been building an ecosystem of its own, which will be hard for many customers to leave once they begin using various services and features. That can give Zoom meaningful pricing power, allowing it to hike its rates over time without losing too many customers. The company's future looks promising. With its shares recently down some two-thirds from their 52-week high, a further drop will make them even more attractive.
These are just a few companies to consider for your portfolio in the event of a market downturn. It's smart to maintain a watch list of companies you'd like to invest in, so that when the market heads south, you'll be ready with a shopping list.
