The idea of buying growth stocks ahead of a potential market crash might seem counterintuitive. However, many growth stocks have already seen their prices crash more than 50% from recent highs, and there are innovative and influential companies in the cohort that actually look positioned to outperform even if conditions worsen for the broader market. Additionally, it's very difficult to time crashes with any meaningful degree of consistency, and investing in already beaten-down category leaders could prove very rewarding for long-term investors.
With those points in mind, a panel of Motley Fool contributors has identified a trio of promising stocks worth buying today. Read on to see why they think these companies can cut through turbulence and provide strong returns.
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This social media giant is cheaper than its ever been
Parkev Tatevosian: The company formerly known as Facebook is an excellent stock to buy if you're worried about a market crash. Meta Platforms (META -0.52%) is trading at the cheapest price it's been in the last five years. The inexpensive price could protect it from falling further in a market crash.
The social media giant boasts more than 2.8 billion daily active users across its family of apps, including Facebook, Instagram, and WhatsApp. The company's apps are free to join and use; it makes money by showing advertisements to those browsing the site and platform. Massive scale is an attractive feature for marketers looking to influence purchases of products and services.
Meta has grown revenue exponentially in the last decade, tapping into this appetite from advertisers. From $5 billion in 2012 to $118 billion in 2021, marketers keep coming back to Meta, boosting their spending yearly. Because Meta's scale is unique to itself, and marketers are experiencing robust returns on investment, Meta can earn premium prices for ads served. Indeed, the business has been incredibly profitable, with operating income rising from $538 million in 2012 to $47 billion in 2021.
FB Price to Free Cash Flow data by YCharts
Fortunately for potential investors, the growth stock sell-off has Meta trading at a price-to-earnings multiple of 13.64 and price-to-free-cash-flow ratio of 13.74. To put that valuation into context, Meta is trading cheaper than many companies with little to no growth. The competitive moat around its business and the cheap valuation should protect the downside during a stock market crash. For those reasons, Meta is an excellent stock to buy right now.
Worth buying now and holding through any market crash
Jason Hall: The market has not been kind to Etsy (ETSY -2.17%) shares. Not only are they down more than 40% since the beginning of 2021, but they are off more than 60% from the all-time high. Yet while the stock price fell, its business was going the other way:
ETSY Revenue (TTM) data by YCharts
As a result, Etsy's shares aren't just cheap compared to the 2021 highs. They're cheap compared to just about any period of time since it went public:
ETSY PS Ratio data by YCharts
And for a growing business like Etsy's, that makes it very attractive, especially for investors with a long-term time horizon. Etsy has built a strong platform that benefits from a number of economic moats, including the network effect: The more people who come to its platform as buyers, the more powerful it is to sellers, and vice-versa.
Caveat: I'm not making the case that Etsy shares won't fall in a market crash. They decidedly will, along with the rest of the market. I'm making the case that Etsy, today, is a bargain for such a great growth business, and stressing that we don't know when the next market crash will happen. It's possible -- likely, even -- that Etsy's share price may never be at these levels, even during some future market crash. Instead of waiting for a crash to buy, it's worth buying today, and then buying more if the market gives you another opportunity to add shares.
Macro uncertainty aside, the gig economy is set for growth
Keith Noonan: Fiver International (FVRR 1.34%) operates a leading freelance-labor marketplace. If you're looking to hire for a job, the company's platform has users offering services in more than 550 different categories. And if you're looking to find work, Fiverr's marketplace had more than 4.2 million active labor buyers at the end of its last quarter. The company is still squarely in the "growth stock" category, but its business could help others adapt to tougher economic conditions, and big sell-offs have shares looking attractively priced.
If the economy worsens, it's reasonable to expect that many companies will cut back on growth initiatives. That would mean that many businesses would reduce hiring or let employees go in order to trim expenses. However, it's possible that a more challenging economic backdrop could actually create conditions that accelerate the growth of the gig economy.
Amid uncertain economic conditions, hiring on a freelance basis gives businesses added degrees of flexibility and can make it possible to pursue vital projects without many of the extra expenses that come with full-time employees. Hiring on a gig-work basis can allow businesses to cut down on expenses related to employee benefits, payroll taxes, office costs, and other categories.
Fiverr's stock is now down roughly 82.5% from the high it hit last year, and it looks like a smart buy at current prices.
Fiverr grew its sales 57% last year, and its midpoint guidance calls for sales to grow another 26% this year even as some pandemic-related tailwinds are waning. The business is also already positive on the basis of earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow, and it appears to be on track for strong cash flow and earnings growth this year. With a market capitalization of roughly $2.1 billion and shares valued at approximately 5.5 times this year's expected sales and 76 times expected earnings, Fiverr stock could deliver big wins at current prices.
