7 Best Stocks to Buy Now to Protect Against a Potential Pullback
InvestorPlace - Stock Market News, Stock Advice & Trading Tips These seven stocks to buy look primed to increase revenue and earnings despite a po...
The potential for a pullback in equities should not deter long-term investors. Although September and even October typically mean increased volatility for stocks to buy, market-timing is not easy or necessary for most retail investors. Also, over the long-term, the market has given a lot more than it has taken away.
Pullbacks are part of the investing game. In fact, they usually constitute a good entry point into stocks for long-term investors before the typically bullish rally, say at the end of the year. Against that backdrop, I will discuss seven solid stocks to buy in in the coming weeks to protect against a potential pullback.
The article focuses mainly on growth stocks that look primed to increase revenue and earnings despite a potential pullback. These names enjoy powerful long-term market trends, unique competitive advantages and large addressable markets.
These shares, for the most part, tend to have loftier valuations than the average stock. Yet, they possess certain qualities that not only protect investors against a potential pullback but also deliver significant returns even in turbulent times.
Although no one can predict when a pullback will happen, it is likely to happen at some point in the near future. However, for those with long-term time horizons, that should not be a cause for concern. With that information, let’s take a look at seven great stocks to buy before September comes to a close.
- Airbnb (NASDAQ:ABNB)
- Corsair Gaming (NASDAQ:CRSR)
- Okta (NASDAQ:OKTA)
- Square (NYSE:SQ)
- Twilio (NYSE:TWLO)
- Zillow (NASDAQ:Z, NASDAQ:ZG)
- Zscaler (NASDAQ:ZS)
Stocks to Buy for Protection: Airbnb (ABNB)
52 week range: $121.50 – $219.94
Airbnb’s platform connects potential guests with more than 4 million hosts in 220 countries. The company issued Q2 results in mid-August.
Revenue surged 299% year-over-year (YOY) to $1.3 billion. Net loss was $68 million, or 11 cents per diluted share, a significant improvement from a net loss of $576 million in the prior-year quarter. As of June 30, the company had $7.4 billion in cash and marketable securities.
On the results CFO Brian Chesky remarked, “Q2 revenue of $1.335 billion, also nearly quadrupled from a year ago and it exceeded 2019 levels by 10%. What this demonstrates is an acceleration in our recovery from Q1.”
Airbnb puts the size of its addressable market at $3.4 trillion. As its adaptive business model creates a unique competitive advantage over traditional hotels, many analysts believe ABNB shares are poised to surge along with a rebounding travel industry.
The company doesn’t have to invest in expensive building developments. Instead, it can swiftly increase its locations by crowdsourcing real estate from hosts and generating inventory in fast and without considerable investment. Additionally, it can offer deals for more extended stays, which has contributed to soaring revenue in the second quarter.
Management is anticipating record sales and profits in the third quarter. ABNB stock is at $170 territory, up 18% year-to-date (YTD). ABNB shares are trading at almost 23 times current sales. The high valuation implies that investors may face volatility in the near term, but holding the stock long-term seems to be a good bet for lucrative returns.
Corsair Gaming (CRSR)
52 week range: $17.45 – $51.37
Fremont, California-based Corsair Gaming provides high-performance gear for gamers and content creators. The product portfolio includes gaming computers and chairs, keyboards, headsets, mice, power supplies, as well as other related products.
Corsair announced Q2 results in early August. Revenue surged 24% YOY to $473 million. Net income came in at $27.7 million, or 28 cents per diluted share, compared to a net income of $22.6 million, or 26 cents per diluted share, in the same period last year. Cash and equivalents ended the quarter at $139 million.
On Q2 results, CEO Andy Paul said, “Our results highlight the strength of the underlying fundamentals of our business, as gamers continue to purchase and upgrade their gear, even as entertainment outside of the home and travel began to open back up.”
Management is anticipating strong demand in the coming months from older customers upgrading to specialized gear. The growing popularity of esports and competitive gaming as well as expanding 5G infrastructure could also fuel further demand for gaming hardware.
Additionally, self-broadcasting is a new growth engine that drives demand for Corsair’s streaming products. Thanks to its solid brand positioning, Corsair is well-positioned to benefit from these tailwinds.
CORS stock currently hovers at $28. The stock is down 22% YTD and trades at only 1.3 times current sales and 17 times forward earnings. Interested readers should consider investing in this gaming company as it rides significant trends in a booming industry.
Stocks to Buy for Protection: Okta (OKTA)
52 week range: $199.08 – $294.00
The pure-play cybersecurity firm Okta specializes in identity and access management, focusing on both workforce and customer identity solutions. The Okta Identity Cloud can integrate with more than 7,000 applications and service providers.
Management issued Q2 results for fiscal 2022 in early September. Revenue increased 57% YOY to $316 million. Non-GAAP net loss came in at $16 million, or 11 cents loss per diluted share, compared to a non-GAAP net income of $10 million, or 7 cents per diluted share, in the prior-year period. Cash and short-term investments stood at $2.47 billion.
Following the announcement, CEO Todd McKinnon remarked, “As organizations advance on their journey of improving their customers’ digital experience, adopting zero-trust security environments, and deploying more cloud applications, they continue to turn to Okta to deliver an unmatched array of modern identity solutions to meet these challenges.”
Okta puts its addressable market at $80 billion. Forrester Research (NASDAQ:FORR) recently named the company as the leader in the identity-as-a-service market, highlighting its more robust offering compared to its rivals.
As trends like digital transformation and remote work continue to accelerate the need for increased security, OKTA stock is primed to generate generous returns for long-term investors. The shares currently hover at $240 territory, down about 5.5% this year. They trade at 34 times current sales. Currently on a small decline, OKTA stock presents a buy-the-dip opportunity for a long-term position.
52 week range: $151.10 – $289.23
Square offers payment services to merchants, along with related services. In addition to operations stateside, Square has expanded to Canada, Japan, Australia and the U.K.
The financial technology (fintech) group released Q2 results in early August. Revenue went up by 143% YOY to $4.68 billion. Excluding Bitcoin (CCC:BTC-USD), revenue increased 87% YOY to $1.96 billion.
Net income came in at $204 million, or 40 cents per diluted share, compared to a net loss of $11.5 million, or 3 cents loss per diluted share, in the prior-year quarter. Cash and equivalents ended the quarter at $4.7 billion.
A letter to shareholders states, “We delivered strong growth at scale during the second quarter of 2021. Gross profit grew 91% year over year to $1.14 billion, which was 57% on a two-year compound annual growth rate (CAGR) basis.”
Square is one of the world’s most innovative and diversified fintech companies. It has transformed phones and tablets into point-of-sale systems, and enhanced its ecosystem with services for processing transactions, handling payroll services, and selling products online.
Moreover, the company has launched a successful peer-to-peer payments platform for consumers via its Cash App. The app eventually evolved into a personal finance platform for free stock trades and Bitcoin purchases. Square recently agreed to buy Afterpay (OTCMKTS:AFTPY) to include “buy now, pay later” services to its ecosystem and challenge traditional credit card companies.
Analysts expect revenue and adjusted earnings to more than double this year. Given its tremendous upside potential, SQ stock should be an excellent option for long-term investors. Its stock hovers at $250, and is up 18% YTD and 63% over the past year.
However, SQ stock isn’t cheap at 110 times forward earnings and eight times current sales. So, interested readers may want to wait for a short-term decline in price to buy the shares.
Stocks to Buy for Protection: Twilio (TWLO)
52 week range: $241.26 – $457.30
Twilio is a communications-platform-as-a-service company that operates a cloud-based customer engagement platform. It enables developers to custom-build user experiences by integrating messaging and communications functionality into existing or new applications.
Management issued Q2 results in late July. Revenue increased 67% YOY to $669 million. Net loss increased to $228 million, or $1.31 loss per diluted share, compared to $100 million, or 71 cents per diluted share, in the prior-year quarter. Cash and equivalents ended the quarter at $1.8 billion.
On the results, CEO Jeff Lawson remarked, “Our strong momentum continued in the second quarter as our revenue growth accelerated at a run rate of more than $2.6 billion. Companies across industries are adopting our platform to drive better, more personalized levels of customer engagement.”
The company currently has over 240,000 active customers. Twilio enjoys an early-mover advantage in the cloud communications market against competitors such as Bandwidth (NASDAQ:BAND) and Vonage’s (NASDAQ:VG) Nexmo. Twilio has benefited significantly from the explosive growth of the mobile market.
TWLO stock currently trades at slightly above $340 per share, but it’s up only 1% YTD and 40% over the past year. Twilio is not cheap compared to its peers, currently trading at 25 times current sales. Potential buyers should consider investing around $320.
Zillow (Z, ZG)
52 week range: $85.24 – $208.11 (Z), $89.11 – $212.40 (ZG)
Real estate group Zillow derives ad revenue from third-party brokers on online marketplaces such as Zillow.com, Trulia and HotPads. Management announced Q2 results in early August.
Consolidated revenue surged 70% YOY to $1.3 billion. Net income came in at $9.6 million, or four cents per diluted share, compared to a net loss of $84.5 million, or 38 cents per diluted share, a year ago. The company ended the second quarter with cash and investments of $4.6 billion.
Zillow uses artificial intelligence (AI) to track the real estate market across the U.S., offering sellers a “zestimate” through its website within a matter of days. The company boasted 2.8 billion visits to its websites and applications during the second quarter.
The company has a suite of nine real estate related brands. The combined businesses are expected to generate over $6.5 billion in revenue this year, highlighting the cross-selling potential of the company’s real estate ecosystem. For instance, the Zillow Offers business enables the company to directly buy and sell homes.
Zillow stock trades at $90. It is down about 31% YTD. Despite solid second-quarter results, the stock is down almost 55% from the all-time high in Feb. 2021. Given the solid fundamentals of the company, the sell-off makes Zillow an attractive pick for long-term investors. Zillow shares trade at 64 times forward earnings and six times current sales.
Stocks to Buy for Protection: Zscaler (ZS)
52 week range: $120.34 – $293.44
Zscaler is a security-as-a-service firm that focuses on large enterprise customers, offering cloud-delivered solutions to protect user devices and data.
Management issued Q4 fiscal 2021 results in early September. Revenue surged 57% YOY to 197 million. Non-GAAP net income of $20.3 million translated into 14 cents per share. Free cash flow stood at $28 million. Cash and short-term investments ended the quarter at $1.5 billion.
CEO Jay Chaudhry commented, “We delivered outstanding results for the fourth quarter, with a record number of large deals across diverse sectors driving 57% revenue growth and 70% billings growth year over year, finishing the fiscal year with strong business momentum.”
The company’s secure access service edge (SASE) allows employees to connect to company resources safely from any device or location. Zscaler utilizes AI to improve threat detection, which makes its platform more effective over time.
Management sees a current market opportunity of $72 billion, more than 100 times Zscaler’s revenue over the past year. ZS stock hovers at $275 territory. It is up bout 37% this year and 97% over the past year, yet the shares have a high valuation, trading at 476 times forward earnings and 56 times current sales. Potential investors should consider buying around $250 or below.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
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