You might not like what I’m about to say, but it’s the truth: Stock market crashes and corrections are an inevitable part of the investing cycle.
No matter what the Federal Reserve or federal government do to support the U.S. economy and financial markets, big moves lower in the stock market are perfectly normal. In fact, moves lower by at least 10% in the benchmark S&P 500 have occurred, on average, every 1.87 years since the beginning of 1950.
The thing is, stock market corrections and crashes aren’t events that should be feared. Rather, they’re an opportunity for long-term investors to put their money to work in high-quality companies at a discount. If you have $10,000 at the ready, consider putting it to work in the following three perfect stocks when the next crash inevitably strikes.
The smartest stocks for investors to buy when volatility picks up are those that won’t be materially impacted by short-term economic hiccups. A stock that perfectly fits the bill is robotic surgical system developer Intuitive Surgical (NASDAQ:ISRG).
Over the past two decades, Intuitive Surgical has installed 5,865 of its da Vinci surgical systems around the world. That may not sound like a lot, but it’s far more than any of the company’s competitors on a combined basis. The rapport Intuitive Surgical has built up with hospitals and surgical centers is priceless, and its competitive advantage might prove insurmountable.
Beyond this statistical advantage, the company is also designed to improve its operating margins over time. In its early years, most of Intuitive Surgical’s revenue was derived from selling its pricey da Vinci systems. However, these surgical systems are costly to build, and therefore don’t generate great margins. Over time, its higher-margin operating segments, which includes instruments sold with each procedure and servicing, have become the company’s primary sales generator. In other words, the more systems Intuitive Surgical installs, the higher its operating margin can go.
Don’t overlook this company’s innovation, either. For instance, installation of the company’s minimally invasive Ion peripheral lung biopsy system have begun to pick following the Food and Drug Administration’s clearance of the new device in 2019. During the third quarter, 11 new Ion systems were placed, bringing the installed base up to 32.
Long story short, expect this company’s double-digit growth opportunity to extend for a long time to come.
Innovative Industrial Properties
Investors don’t have to retreat to boring consumer goods stocks when the next stock market crash occurs. Instead, consider investing in a high-growth industry whose primary product acts like a consumer-packaged good, like marijuana. In particular, put some of that $10,000 to work in ancillary marijuana stock Innovative Industrial Properties (NYSE:IIPR).
Innovative Industrial Properties is a cannabis-focused real estate investment trust (REIT). This means it acquires cultivation and processing facilities and leases these assets out for long periods of time (usually 10 to 20 years). IIP, as the company is known, benefits from the high predictability of the rental income it receives, and is also able to pass along annual rental increases to its tenants to stay ahead of the inflationary curve.
As of this past week, IIP owned 66 properties totaling 5.4 million square feet of rentable space in 17 states. Over 99% of this 5.4 million square feet is currently rented out, with a weighted-average lease length of 16.6 years. Before the company stopped reporting its average yield on invested capital in the first quarter, it was north of 13%. Thus, it’s quite possible for IIP to receive a complete payback on its invested capital in under seven years.
Best of all, Innovative Industrial Properties is benefiting from the inaction of the federal government in passing cannabis banking reform. The company’s sale-leaseback agreements have helped provide cash to needy U.S. pot businesses, while at the same time landing IIP high-quality, long-term tenants.
Marijuana will likely be one of the fastest-growing industries this decade, which sets IIP up for success.
Another perfect stock to invest $10,000 into when the stock market crashes next is social media kingpin Pinterest (NYSE:PINS).
Perhaps the most attractive aspect of Pinterest is the company’s ballooning user base. In the September-ended quarter, Pinterest closed with 442 million monthly active users (MAU), representing a 37% increase from the prior-year period. While the pandemic has definitely encouraged users to stay home and peruse the internet more often, Pinterest was growing like wildfire even before the coronavirus disease 2019 (COVID-19) upended societal norms. In the three years leading up to 2020, Pinterest averaged 30% year-over-year MAU growth.
Also of note, a majority of Pinterest’s user growth is coming from international markets. Of the 120 million net MAUs gained over the past year, more than 108 million were outside the United States. Though average revenue per user (ARPU) is considerably lower outside the U.S. than inside ($3.85 vs. $0.21 in Q3 2020), there’s an incredible opportunity to double overseas ARPU many times over this decade.
Additionally, Pinterest has a path to become a real force in the e-commerce arena. With its users willingly posting about the things, services, and places that interest them, it’s only logical for the company to act as a bridge between small businesses and these presumably motivated consumers. Pinterest plans to incorporate more video usage to drive engagement, and partnered with Shopify in May to aid merchants in growing their business. For example, the Pinterest app on Shopify allows merchants to upload their product catalog, while also giving them access to analytics to help more efficiently sell their products on Pinterest.
In short, a stock market crash is no reason to run away from Pinterest.
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