2 Top Stocks to Buy in a Highly Volatile Market

Stock market volatility isn't fun, but it if you have the cash on hand, you can use it to your advantage. In this segment of Backstage Pass, recorded on Jan. 26, Fool contributors Rachel Warren, Connor Allen, and Jason Hall discuss two unstoppable stocks for investors to consider buying right now. 

Rachel Warren: It goes without saying, but the market has been somewhat insane lately. In these turbulent times, we often get questions from our awesome Motley Fool members asking for stock ideas and quality picks to buy during this stormy period. No matter what your investing style is, whether you like to buy stocks on the dip or you tend to stick to slower growth, more traditional value stocks.

There are no shortage of options to pick from right now, particularly on sale. We're each going to make our own little stock basket.

First, I want you to pick a once-high-flying stock that's way down that you think is a great buy at its current valuation. Then pick a lower-volatility safe stock that you think investors should also consider right now. Connor, I'll let you take this one first.

Connor Allen: The company that I'm talking about, it's a highflier and it's been absolutely beaten down is Coinbase (COIN -0.70%). Coinbase is about 50% off of its highs right now. But if you look at its fundamentals from the last year, it's pretty incredible.

This is since IPO, what this is showing right here. They IPO'd in early 2021, I believe, or maybe it was 2020, I cannot remember. Early 2021. Overall stock performance has not been great, it's down 45%.

But if you look at their net income growth, it's up 820%. You look at free cash flow growth, it's up 230%. You look at revenue and it's up 360%.

A lot of times when you see the fundamentals that are so direct polar opposites of the stock price, it can lead to a potential great entry point into a stock.

If you actually look at their price-to-earnings ratio, they're trading at 17 price to earnings. That is so rare. I don't know if I've ever seen a company trade at such a--

Jason Hall: Say all of those words again because I don't believe you.

Allen: Exactly.

Hall: Does it trade for 30 times sales?

Allen: No. Here, I'll show you right here.

Hall: I'm teasing you, but I think people don't understand how incredibly profitable this business has become so incredibly quickly.

Allen: Yeah, it's crazy. I actually am going to bring up price to earnings because it's interesting looking at the chart here when they went public. Hold on, let's get this original.

Hall: White you're pulling that up, I'm going to spout out just an interesting stat. I've done some research and some writing for it for a couple of the services.

Coinbase does about as much volume now in two quarters as it did the first seven years it existed. Isn't it amazing? That's where we are with crypto. It's become real, it's legit now.

Warren: Yeah, it's like you don't want to invest in crypto, but maybe you want to profit off of some of the growth in that industry, a company like Coinbase specifically, solid play.

Allen: It's not a company that I own, but it's something that I've been thinking about owning for a while. If you're trying to invest in the crypto space, I mean, Coinbase is definitely a phenomenal play.

But what I was saying earlier is just it went from IPOing at 100 times earnings and now it's down below 17, it's at 16 now. So just absolutely incredible, multiple compression over the past few years and it looks like it's trading at a pretty attractive value right now. So that would be my highflier choice.

Oh, my safe choice. My safe choice is Taiwan Semiconductor Manufacturing (TSM -1.91%), and that's because I was actually talking about this on "Beat and Raise." It's just a safe play on the semiconductor, they've got insane competitive advantages.

If you look at the capital needed in order to enter that space and try to compete with Taiwan Semi, it's almost impossible for any company to even try to compete with them.

They've got partnerships with Apple, partnerships with companies all over the world, and it doesn't seem like those companies had any desire whatsoever to do their own manufacturing because it doesn't make sense for them. So I think these partnerships and customers that they have are going to last for a very long time.

Hall: They can pay Taiwan Semi to manufacture for them for double-digit percentages cheaper than it would cost them to manufacture it themselves, and that's before they spent tens of billions of dollars just to build out the fab capacity to do it. It's just such a rock-solid business. I'm right there with you on that. So I think in terms of just, go ahead, Connor.

Allen: Not to mention their 10% price increase across the board that they implemented this year and no customers are leaving. So that just shows the pricing power that they have.

Warren: Yeah, major pricing power. I was actually going to ask because this isn't a company I follow super closely with this ongoing shortage, have they been able to continue to reign supreme and just been able to factor in those pricing changes to deal with?

Hall: They were already at capacity, Rachel, before. I mean, this is because they're just so good at it. This is what they do, is they make semiconductors for everybody. I mean, they make semiconductors for Intel, for God's sake. [laughs]

Warren: Wow.

Hall: This is what they do, and they make the most advanced semiconductors in the world.

So every time we see the next step change in the size that gets smaller with more semiconductors, this is a company that's leading with the process and the manufacturing and they work with all the top companies that make the equipment to do it, and they don't compete against any of their customers.

So Samsung does, because if you're a smartphone manufacturer, you're a TV manufacturer, you need semiconductors, Samsung is the other big player. What does Samsung also do? Sell TVs and sell smartphones. Intel is trying to stand up a fab.

I think they're going to be able to do it, but Intel's also, by volume or by revenue, the biggest semiconductor manufacturer in the world. Because there's such a massive pure play, they're the premier partner. It's just such a great business.