Many investors wonder when a sell-off might occur with the market continually notching new highs. While I don't think it's in the cards just yet, it's good to be prepared if there is one.
This makes it easy to act when the market is falling, allowing you to quickly make decisions instead of needing to analyze. If there's a market sell-off, I'm buying these three stocks first.
1. Nvidia
First off is Nvidia (NVDA 6.18%), one of the hottest stocks in the market. Nvidia's GPUs (graphics processing units) are best in class for artificial intelligence (AI) workloads, which has caused the company to grow dramatically over the past year. In the fourth quarter of fiscal year 2024 (ending Jan. 28) alone, its revenue rose 265% year over year to $22.1 billion.
But the stock is pricey, trading at around 33 times forward earnings. So, if there's a market sell-off, there's a good chance this premium comes down. That would open the door for me to purchase the stock, as I've missed out on most of its performance.
Nvidia is operating in a massive market, with the global GPU market opportunity expected to reach $400 billion by 2032. So, while Nvidia would likely get hit hard in a sell-off, it will be fine over the long term.
2. CrowdStrike
CrowdStrike (CRWD 2.03%) is not only my favorite cybersecurity stock, but it's the market's favorite as well. This has caused CrowdStrike's stock to become inflated, trading at 27 times sales.
CRWD PS Ratio data by YCharts
If CrowdStrike could snap its fingers and become instantly profitable with a 30% profit margin, it would trade at 90 times earnings. That's more expensive than Nvidia, even from a hypothetical standpoint.
CrowdStrike also has a massive market opportunity estimated at about $225 billion by 2028. With its annual recurring revenue rate rising 35% to $3.15 billion in Q3 FY 2024 (ending Oct. 31), it has a long way to go before saturating its market.
I'm a huge fan of CrowdStrike as a business, but it's not a great buy at this price, so I'll wait until a sell-off occurs.
3. Costco
Sticking with the trend of great companies at expensive prices, Costco (COST 1.01%) fits this category. It's also a completely different investment style than the other two, being a commerce store.
Costco has been a market-crushing investment for some time, thanks to its strong execution. Costco isn't going to light the world on fire with amazing growth, but it will consistently grow its earnings at a pace greater than 10% over the long term.
COST EPS Basic (Quarterly YoY Growth) data by YCharts
By growing its earnings faster than the 10% threshold, Costco is well positioned to beat the market. But at 51 times trailing earning and 48 times forward earnings, it's unbelievably expensive and trades far above where it normally does.
COST PE Ratio (Forward) data by YCharts
If Costco comes back down in a market pullback, I'll be sure to add more shares to my portfolio. Until then, I'll hold off because it's just too expensive to consider buying now.
