Broadly speaking, waiting for a stock to pull back before jumping in (or holding out for a big rally to get out) isn't a great investing strategy. Equities have a knack for being stubborn. Besides, timing the market is just plain hard!
There are instances, however, when exercising patience with a prospective trade pays off.
Now's arguably one of these times for three particular tickers. The market's been rallying of late, and these names are leading the charge. They've raced too far ahead to safely step into now, in fact. You'd be wise to wait for a market crash to drag these stocks down to a more palatable price before pulling the trigger. That would be my plan, anyway.
Microsoft
Just as a thought exercise, imagine your life without any products made by Microsoft (MSFT 1.82%) in it. That takes most desktop and laptop computers out of the picture; GlobalStats says around two-thirds of them use Microsoft's Windows operating system. Say goodbye to about half the planet's most popular office productivity software like Microsoft's Word and Excel, too. The company's Xbox accounts for roughly one-fourth of the game console market.
Then there's Microsoft's profit centers you don't see. Its Azure software is the solution of choice for nearly one-fourth of world's cloud computing platforms, according to data from Synergy Research. The company also offers tons of more specialized business software and services.
The planet would continue to spin with or without Microsoft in it, but it wouldn't be the same.
And that leaves Microsoft in a very powerful position -- it's got tremendous sales firepower on several fronts. That's how the company's been able to log year-over-year revenue growth in every quarter since the latter half of 2017. Profits have grown comparably well, even if not quite as consistently.
The kicker: While the software business is still basically what it's always been, the way it's sold is evolving. Rather than one-time purchases of software, Microsoft is increasingly renting cloud-based access to software on a month-to-month basis. This business model allows for much more predictable and far steadier recurring revenue. The company simply needs to continue bringing new customers into its software ecosystem to keep growing its top line.
That's the chief reason shares are up by more than 50% just since the end of last year, hitting another record high last week. Investors pretty much know much of the company's future revenue is already lined up. Of course, a rally like this doesn't leave much room for further upside without a sizable pullback being made first.
Visa
There was a time when the use of credit cards was largely limited to occasional, bigger-ticket purchases. Numbers provided by the Federal Reserve indicate that in 2009, 28% of purchases made within the United States were paid for in cash, with another 13% being paid for with a check. In that same year, debit cards were used to complete 29% of consumer commerce, while credit cards were only utilized 17% of the time.
How different things are now! The Federal Reserve reports that last year cash was only used to pay for 18% of purchases completed in the U.S., while debit and credit cards were pulled out 31% and 29% of the time, respectively. Although the numbers may be different elsewhere, the same shift is evident all over the world, as more and more consumers are finding cards are more convenient than cash. Card issuers' loyalty and rewards programs certainly don't hurt their usage either.
This trend plays right into the hand credit and debit card middleman Visa (V -0.23%) is holding. In its recently ended fiscal year the company processed over 270 billion total transactions, facilitating the sale of over $14.8 trillion worth of goods and services. That's huge. In fact, outside of UnionPay's reach within China, Visa is the world's biggest credit card network. While not impossible, it's tough to topple the dominant names in any business. They use their size and strength to defend their market share, after all.
And Visa shares reflect the company's unyielding strength... and then some. The stock's rallied 40% from last October's low, and is knocking on the door of a new all-time high. The market's understandably rewarding Visa's resilient revenue and earnings growth.
Interested investors, however, will likely see a better entry price sooner or later. It does suffer the occasional but temporary pullback.
Walmart
Last but not least, add Walmart (WMT -0.08%) to your watch list of potential stocks to buy in the event of a marketwide sell-off. Shares are just off a record high of their own after climbing 44% from the bottom made in the middle of last year. That's a bit too hot for this particular stock.
Walmart is of course the world's biggest brick-and-mortar retailer, dominating the United States' retail landscape with 4,600 namesake stores plus nearly 600 Sam's Club shopping warehouses. This size provides the company with a huge competitive advantage. Not only can Walmart spread its corporate costs like advertising and administration out to thousands of stores, it's also a critical distribution channel for vendors and national brands -- they need Walmart's extensive reach for a big chunk of their revenue, and they're willing to offer Walmart great wholesale prices in exchange for space on the store chain's shelves. That's how the retailer remains a low-price leader, which in turn is why it continues to draw an ever-bigger crowd of shoppers.
It's cementing these customer relationships by adding more lifestyle amenities, too, such as primary healthcare, veterinarian services, and even technology installation offerings. No rival is in a position to meaningfully compete with Walmart's sheer dominance.
The latest tailwind? Inflation is now driving more affluent customers to its stores. The company's touted several times since the middle of last year that much of its sales growth is coming from customers with household incomes in excess of $100,000. What you can't readily see is everything Walmart is doing to keep them coming back even once inflation abates and the economy perks up again.
Do know that Walmart shares took one on the chin immediately following Thursday's release of its fiscal third-quarter results. Although sales and earnings were both up and both better than expected, guidance for the holiday shopping season now underway was lackluster. Investors panicked, driving the stock 7% lower. That's a discount to be sure, and arguably an attractive entry point.
A true market crash would likely drag this stock down much more than that, however. It wouldn't be wrong to hold out for a more dramatic tumble rather than a knee-jerk stumble.
