In the last five decades, the S&P 500 has fallen by 10% or more on 26 different occasions, according to Yardeni. On average, it took 191 days for those market corrections to hit bottom, though the range varied from 33 days to 929 days. Similarly, the average decline was 21%, though the benchmark index fell 57% during the Great Recession.
That historical data provides important context. Corrections are fairly common, but the extent and duration of any individual market crash are unpredictable. That's why a long-term investment strategy makes sense. Rather than trying to time the market, look for growing businesses with some type of advantage, then buy and hold those stocks through thick and thin.
Here are two ideas to get you started.
Image source: Getty Images.
1. Airbnb
Airbnb (ABNB 0.10%) has disrupted the multi-trillion-dollar travel and tourism industry. By crowdsourcing real estate from 4 million hosts, its platform helps guests book immersive rooms and experiences in thousands of cities around the world. Put another way, Airbnb is a hospitality company that doesn't actually own any rental properties, and that asset-light business model is a significant advantage.
Hotels cost millions of dollars to build, and they take months to complete. But Airbnb can add new hosts in minutes, meaning it can adapt more quickly to changes in consumer travel preferences. Airbnb also offers guests more optionality. People can book all sorts of rural and urban lodgings, from cozy mountainside cabins to trendy studio apartments in a big city. Its platform even features unique options like castles, tugboats, and treehouses.
Over the past year, Airbnb has delivered stellar financial results, fueled by the pent-up consumer demand for travel. Revenue soared 93% to $6.6 billion, and free cash flow (FCF) skyrocketed 610% to $2.9 billion. That equates to a monster FCF margin of 43%, underscoring the highly profitable nature of its business.
Last year Airbnb introduced flexible search options, meaning its platform can now surface personalized recommendations when people are flexible on travel dates and destinations. Airbnb also simplified the host onboarding process, and it introduced AirCover, free damage protection and liability coverage for all hosts on the platform. Those features should attract more guests and hosts, supercharging the network effect that powers its business.
More broadly, Airbnb's asset-light strategy should keep it at the forefront of the travel and tourism industry, helping the company capitalize on its $3.4 trillion market opportunity. A recession may slow consumer spending, but no market crash would permanently alter the trajectory of Airbnb's business. That's why this growth stock is a smart long-term investment.
2. Arista Networks
Arista (ANET 3.92%) specializes in high-speed networking. Its switching and routing platforms allow clients to deploy seamless networks across public clouds, private data centers, and enterprise campus environments. Its portfolio also includes software products for network workflow automation, performance monitoring, and security. As a testament to its reputation, Arista counts cloud titans like Microsoft and Meta Platforms among its 8,000 customers.
The company's core innovation is the Extensible Operating System (EOS), the software that runs its entire portfolio of networking hardware. That single software image approach differentiates Arista from legacy vendors like Cisco, a company that uses multiple operating systems, making network management more complicated and costly for IT personnel.
Better yet, Arista's networking solutions offer industry-leading capacity, speed, and power efficiency, and that value proposition has translated into strong financial results. In the past year, revenue rose 28% to $3.2 billion, and free cash flow climbed 16% to $904 million. Shareholders have good reason to believe that performance will continue.
While Cisco still leads the broader switching industry, Arista is the dominant force in the high-speed sector. Not surprisingly, that is the direction the industry is moving. Data centers will need faster networks to keep pace with the popularity of cloud computing and the proliferation of connected devices. With that in mind, management values the market at $29 billion by 2023, and $35 billion by 2025.
So why buy the stock? Arista enjoys a leadership position in a critical and quickly growing industry, and no market crash will alter the long-term trajectory of its business.
