The stock market has gotten off to a bumpy start early in 2022. The S&P 500 index's level has fallen roughly 5.5%, and the even more tech-heavy Nasdaq Composite index is down 9.5%. It's possible that even bigger sell-offs are coming down the pike.
Market crashes can be painful, but they also present opportunities to scoop up great stocks at big discounts. Read on to see why a panel of Motley Fool contributors identified Airbnb (ABNB 0.10%), Mastercard (MA -0.08%), and Shopify (SHOP -2.37%) as top stocks to pounce on if selling intensifies as we head through the year.
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This travel leader is on track for big wins
Keith Noonan (Airbnb): Trading down roughly 23% from its high, Airbnb stock is already a worthwhile buy for long-term investors. If market turbulence sends stocks significantly lower, the short-term rental specialist will be at the very top of my buy list.
Airbnb is a great business that looks poised for huge growth over the long term, and its stock is poised to be a big winner for patient investors. The company has already become virtually synonymous with the short-term property rental space, and it's likely just scratching the surface of its potential. In addition to a long runway for expansion in its core service category, the company's push into the events booking space also has plenty of promise.
Airbnb's last quarterly report showed that the business is recovering from challenges created by COVID-19, and it seems as though some of the remaining clouds on that front may be dissipating. With countries including England, Ireland, Denmark, and Sweden recently lifting pandemic-related restrictions, there are mounting signs that the rest of the year will see continued improvement for the travel and hospitality industries.
If a market crash hits in 2022, it could actually coincide with a powerful recovery for the travel industry. If that occurs, investors will likely have the opportunity to nab Airbnb stock at an attractive discount even as the business experiences a strong upswing. With growth stocks seeing big sell-offs in recent months, this kind of dynamic already appears to be playing out on a smaller scale, but additional turbulence could create the opportunity to invest in this category-leading company for a song.
When temporary problems hit a timelessly great business, it's time to buy
Jason Hall (Mastercard): One of the biggest beneficiaries of the global shift to e-commerce, mobile computing, and digital transactions is Mastercard. The company's secure payment network has for decades been one of the most trusted platforms for merchants, banks, and consumers, and the acceleration to digital has helped it continue growing at a rapid rate.
As a result, it's been a huge winner for investors since going public about 15 years ago:
MA Total Return Level data by YCharts
It's also one of the safest fintech businesses to own, with incredibly high gross profit and operating margins, the result of its asset-light, toll-both business that earns a cut of every transaction that runs on its rails. Nevertheless, its stock has fallen farther than the S&P 500 every time the market has dropped at least 10% since Mastercard's initial public offering:
Market crashes often happen when there is economic worry. Since Mastercard earns money mainly from consumer spending, it makes sense that investors would react this way, at least to a certain degree. During periods of protracted economic weakness, Mastercard's results will suffer.
But once that temporary period of economic weakness passes, Mastercard has always proved resilient, and its balance sheet gives it the strength to ride out just about any economic environment. And if its shares fall more than the market during the next crash, that makes it a perfect stock to buy.
The pandemic accelerated Shopify's revenue growth
Parkev Tatevosian (Shopify): Shopify offers the tools that help entrepreneurs create an online business channel. It's no surprise the e-commerce enabler has benefited tremendously since the pandemic onset as businesses worldwide scrambled to create an online presence. What's more, forced brick-and-mortar closures brought a tidal wave of shopping online. While the pandemic was not the beginning of the growing spending shift to online channels, it did put fuel on the fire.
Similarly, Shopify was experiencing explosive growth -- revenue grew from $24 million to $1.6 billion from 2012 to 2019 -- even before the outbreak. At the pandemic onset, the significant change in consumer spending nearly doubled Shopify's revenue from $1.6 billion in 2019 to $2.9 billion in 2020. And already, in the nine months ended Sept. 30, 2021, Shopify has generated $3.2 billion in sales in 2021. No question, Shopify is more robust, infused with boosted revenue since the outbreak as it has attracted entrepreneurs and the trend of consumer spending moving online was accelerated.
Meanwhile, Shopify is trading at a price-to-sales ratio of 27, which is below where it started in 2020. At its current price, investors can buy Shopify, a business that was made more robust during the pandemic, for roughly the same price it was selling for before the outbreak. Relatively speaking, it's a bargain. But a price-to-sales ratio of 27 is not a low price to pay for a business. Investors pay a premium for the explosive growth and excellent prospects Shopify offers. That said, if there is a stock market crash in 2022 and the broad sell-off takes Shopify's price down, investors could have an opportunity to buy this explosive business at a cheaper valuation.
