Bear markets can make it tough for investors to figure out which stocks to buy. As stock indexes tumble, everything can look like a bad investment. Fortunately, market downturns also have the potential to create fantastic opportunities for all types of investors.
These three stocks are interesting for three totally different reasons, and they all have strong long-term prospects, especially in a market downturn.
1. CrowdStrike
Growth investors can seize on market downturns to purchase tomorrow's giants at discounted prices. CrowdStrike (CRWD 1.15%) is one such beaten-down growth stock that still has excellent long-term prospects. It's one of the cybersecurity industry's emerging stars, and it's one of the most respected vendors in endpoint security.
CrowdStrike's products monitor computer networks for various security threats that can infiltrate the system when accessed by computers or mobile devices. Guarding against these vulnerabilities has become a universal need, as nearly every business has some exposure to the devices of its employees, vendors, or customers. That represents a major catalyst for CrowdStrike moving forward. Even better for shareholders, cybersecurity threats evolve over time, contributing to ongoing demand for the best solutions in digital protection. Don't worry that this company will go away anytime soon.
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CrowdStrike's shares had extremely high valuation ratios prior to the bear market, and it's been crushed as a result. The stock is down more than 63% from its all-time high, and its price-to-sales ratio dropped from more than 65 down to 12.
Even though the stock price tumbled, the company's financial results remain impressive. CrowdStrike's most recent quarterly revenue grew 53% over the prior year, while free cash flow increased 40% to $174 million. Wall Street is justifiably concerned by the company's slowing growth rate, but those are still enviable figures. It's expanding at an impressive rate, but it's not burning cash to do so. Due to the market downturn, investors can buy the stock at the cheapest level in years. These are the exact qualities that growth investors seek in bear markets.
Despite tumbling, CrowdStrike's forward P/E Ratio is still above 70, but still near its lowest point since the stock went public. That's perfectly common for a company with this sort of outlook, but investors should be prepared for volatility. Even with a few bumps in the road, this is an attractive long-term opportunity for major returns if the company maintains its impressive financial performance.
2. American Express
American Express (AXP 0.59%) is better suited for investors with less risk tolerance. The company issues credit cards and processes transactions, maintaining the third-largest credit card network in the U.S. It's cultivated excellent brand strength, paving the way to now serve more than 120 million customers. American Express' business model and huge customer base result in a fairly stable company that can produce impressive cash flows now and in the future. In its most recent quarter, American Express reported 24% year-over-year revenue growth and free cash flow that's on pace to hit $12 billion for the full year.
That's exactly why Warren Buffett has held American Express shares for decades. It's never going to deliver massive growth like some tech stocks, but it can outpace the economy in general while maintaining sound financial health, producing consistent cash flows, and returning some of that cash to shareholders as dividends. That's a sound combination of features that can play a role in any equity portfolio.
The threat of an economic slowdown and curtailed consumer spending could certainly jeopardize this business, but even a major recession is unlikely to have long-lasting and catastrophic effects. The fintech revolution is putting pressure on incumbent processing and transfer companies, but American Express has built a competitive advantage with rewards, perks, and significant presence in the corporate card market. Investors can enjoy long-term upside while taking dividend returns today during the market downturn.
3. Johnson & Johnson
Johnson & Johnson (JNJ 0.00%) is a great choice for investors seeking a defensive stock that can weather recessions and market cycles. The diversified healthcare company has a large consumer staples segment that produces basic home health, wellness, hygiene, and cosmetic products. It's also among the largest branded pharmaceutical companies in the world, and its medical device segment is one of the global leaders.
The company plans to spin-off its consumer health business in 2023, leaving shareholders with a stake in each of the two newly separated ventures. This will obviously reduce the scope and diversification of each individual entity, but the resulting businesses will be giant players on their own.
Healthcare is one of the most recession-proof sectors, and Johnson & Johnson might be the most diversified business in the space. Even after the planned spinoff, shareholders will still enjoy diversification within their portfolio, and the two planned entities will still be diverse in their own right. The stock's exceptionally low beta, which is under 0.6, is a testament to that stability. It's one of the lower-volatility stocks on the market.
Johnson & Johnson isn't a growth stock by any stretch, but it should be on the radar of value investors and income investors. It has 60 consecutive years of dividend growth and a respectable 2.72% yield. If you want safety and reliability in a market downturn, this could be the best stock for that purpose.
