It's been a roller-coaster month for investors as the Federal Deposit Insurance Corp. (FDIC) has shut down multiple banks, and investors fear this risk could spread throughout the sector.
Times like this can be nerve-racking for investors. The S&P 500 has declined by about 6% in the past month. However, it's important to see a further market pullback as an opportunity to scoop up shares of quality companies at lower prices.
Businesses that can weather short-term volatility and have excellent long-term prospects are ideal. Here's why Visa (V -0.76%), Intuit (INTU -1.60%), and Nvidia (NVDA 4.89%) are all solid stocks to add during a market pullback. Let's find out a bit more about these three stocks.
1. Visa dominates payments and has a robust balance sheet
Visa helps customers move money worldwide through its debit cards, credit cards, and other payment methods. When it comes to processing payments, no one does more business than Visa. In 2021, Visa processed 244 billion transactions totaling $13.5 trillion in volume. This is over 75% more volume than its next closest competitor, Mastercard.
Visa's business is relatively asset-light, meaning it doesn't spend much on equipment or inventory. As a result, it has juicy profit margins, which have averaged over 45% for the last decade. Last year, it also generated $17.7 billion in free cash flow, which is money it can use to pay down debts, reward shareholders with dividends and stock buybacks, or invest in the business.
V Profit Margin data by YCharts
It has been resilient this last year, with inflation running hot. In its recent quarterly earnings, it processed 10% more transactions and grew net revenue by 12%. If we entered a recession, consumer spending could pull back and hurt Visa's bottom line. However, it has a robust balance sheet and should be able to ride out short-term headwinds.
Companies with lower debt are at a lower risk of default or bankruptcy during an economic downturn. Visa's debt-to-equity ratio is around 0.56, showing that it doesn't use much leverage to finance operations. Its balance sheet also has $13.3 billion in cash and cash equivalents, giving it plenty of liquidity to ride out a downturn.
2. Intuit sees significant opportunities in personal finance
Intuit provides technology for consumers and small businesses to manage finances, save money, pay off debt, and prepare taxes.
Its small-business and self-employed segment produces half of its revenue. This segment includes QuickBooks, which small businesses use to manage finances, track time, and process payroll and other payments. Its consumer segment is responsible for another 31% of its revenue, led by its TurboTax software and assisted tax prep.
Every year, whether we like it or not, we've got to do our taxes, and Intuit's top-ranked tax platform gives it resilience in a downturn. TurboTax is a massive player in the tax prep space, with a 73% share of the market in 2021, according to Bloomberg. Also, at 0.45, Intuit's debt-to-equity ratio is modest and another positive aspect of the business if we enter a recession.
Intuit estimates that its core addressable market is $81 billion, which includes its TurboTax and QuickBooks platforms. It also sees a massive opportunity in the U.S., with its addressable market totaling $253 billion. This market comprises personal finance solutions like its Mint platform and its financial product recommendation engine and credit tracking platform, Credit Karma.
Intuit grew its net revenue by 13.7% year over year in its most recent quarterly earnings, led by growth in its small business & self-employed and consumer segments. Its resilient business and long-term growth opportunities make Intuit another solid stock to add in the next market downturn.
3. Nvidia provides the hardware in most of today's revolutionary technologies
Nvidia designs graphics processing units (GPUs), the technology that makes video game graphics as advanced as they are today. Several of today's most innovative technologies leverages its GPUs, including artificial intelligence (AI), robotics, metaverse, and cryptocurrency mining. Because of the wide use of its products, Nvidia has several levers that give it resilience in downturns.
For example, last year it struggled from falling consumer spending on video cards for gaming, and gaming sales fell 27%. However, it saw data center revenue grow by 41% as customers flocked to its Nvidia AI cloud service offering. Its cloud service allows customers to leverage Nvidia's infrastructure to train AI models, and customers enter into multiyear contracts for this service.
Image source: Getty Images.
Another area that saw 60% revenue growth was its automotive revenue. Here it was boosted by strong demand for its products used in self-driving and electric vehicles. When all was said and done, Nvidia's revenue of $27 billion was on par with the prior year.
One near-term headwind the company faces is a buildup of graphics card inventory. Last year, it had to write down the value of unsold inventory, which reduced its adjusted earnings by 25%. Nvidia will have to work through these inventories, which could weigh on earnings in the short term.
However, its long-term potential remains stellar. According to a report published by Allied Market Research, the GPU market size is projected to reach $200 billion by 2027 -- a compound annual growth rate of 33.6%. Nvidia also pegs its total addressable market at $1 trillion, including $300 billion in automotive and another $300 billion in chips and systems using its hardware.
Nvidia GPU dominance has it well positioned for the next decade and beyond, which is why this stock is a solid buy if the market continues to pull back.
