Market Trends and Investment Suggestions
Since April, the stock market has been on a notable upward trajectory. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have all reached new peaks, and it’s been quite a ride. This year, the Nasdaq has particularly shone, bouncing back 13% after a significant drop of 10% in the first quarter.
While corporate earnings look solid, the overall economic landscape feels a bit wobbly. Rising inflation, a sluggish job market, elevated interest rates, and notable geopolitical tensions contribute to that unease. Could a market crash be on the horizon? It’s really hard to say. History suggests that corrections always come, especially when valuations are as high as they currently are.
When you’re putting together your investment portfolio, it’s smart—maybe even essential—to consider the possibility of bear markets and corrections. Diversification is key, so having a mix of stocks and exchange-traded funds (ETFs) can help you navigate tough times with a bit more ease.
On the flip side, dips in the market can be golden opportunities to strengthen your portfolio. Some investors might see the glass as half-full—they recognize that buying during downturns can lead to long-term gains. If a crash were to happen, here are three stocks I would consider buying.
1. Nvidia
Nvidia is, quite frankly, one of the most valuable corporations today. This company plays a pivotal role in the artificial intelligence (AI) boom, producing chips that power a vast array of AI applications and data centers. In the rapidly evolving data center market, Nvidia holds nearly 90% of the share, which speaks volumes about its earning potential. There’s a long way to go for the company.
When Nvidia reported its first quarter results recently, revenue jumped 85% to $81.6 billion, with even more impressive growth in its data center revenue—up 95% year-over-year. For the upcoming quarter, the goal is a staggering $90 billion in revenue, with a significant gross margin of 74.9%.
The real trick with Nvidia isn’t about finding growth opportunities; it’s more about making wise purchasing decisions based on valuations. When the market is hot, it might be worth holding back a bit. In downturns, buying becomes the name of the game.
Despite seeing a rise of about 15% this year, Nvidia’s forward price-to-earnings ratio is still reasonably low at 27 times, which makes it attractive. Values below 1 are typically seen as undervalued concerning growth potential, so now might be a good time to buy, or even better, if things take a downturn.
2. Amazon
Amazon is another stock that’s worth considering when it’s on the decline. This year has been a roller-coaster for its stock, mainly because it’s trading near its lowest valuation in a while. Concerns about its short-term earnings from slower growth and hefty investments in AI have dampened the stock price, leading to some investor sell-off.
However, when its stock tumbled about 20% between mid-January and the end of March, savvy investors jumped back in. The stock has since climbed roughly 34% since late March, currently trading around $265 a share. Although it’s seen about a 15% increase this year and its valuation is gradually improving, investors might be feeling a bit cautious given the current P/E ratio of 31x, which reflects last summer’s levels.
It’s a solid long-term investment, yet people may hesitate at these higher valuations. If there’s a significant drop that brings the P/E back into the mid-20s, that would be a prime opportunity to snag it.
3. Walmart
Walmart is often seen as a reliable stock during downturns and bear markets. I mean, who doesn’t love a good bargain? As the largest discount retailer, it tends to attract more customers during economic slowdowns when budgets are tight. Its prices and variety—including groceries—play a massive role in that appeal.
Recently, Walmart has seen strong foot traffic due to rising inflation, which in turn has attracted investor interest. Its stock has an impressive annualized return of 21% over the past five years. However, the current situation is a bit tricky. Walmart shares are trading at a P/E ratio of 43x and a forward P/E of 41x, which feels a bit too steep given its stability.
While the company continues to grow, I’d be hesitant at this valuation. That said, if there were a market downturn, I’d be inclined to jump back into Walmart at a more favorable price because historically, it thrives in recessions—provided it’s priced right.
