Throughout its history, the stock market has steadily risen in value, enriching countless investors. It never rose in a straight line, though – zoom in on any long-term stock market chart over time and you’ll see a jagged line. There are always ups and downs.
The prospect of a market downturn may make you nervous, but savvy investors will simply expect the occasional correction and crash and, if possible, buy shares of the companies they wish to own, as many are trading at a lower and more attractive price.
Here are three promising companies to consider adding to your portfolio if they fall at an attractive entry point in a market downturn.
netflix (NASDAQ:NFLX) has been in tears for many years now, having adapted well to changing circumstances as it grew from specializing in DVD rentals to a major force in streaming entertainment. It recently boasted of 222 million paid memberships in over 190 countries. The shareholder letter that accompanied Netflix’s fourth quarter results stated: “We achieved several milestones in 2021: we had the biggest TV show of the year (Squid Game), our two biggest movie releases of all The Times (Red Notice and Don’t Look Up) and Netflix was the most Emmy-winning and most-nominated television network and the most-awarded and Oscar-nominated movie studio of 2021.”
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The quarter also featured revenue up 16% year over year and more than 8 million net new subscriptions. This was disappointing to some, and management didn’t have a good explanation for the slow growth, but the company has been performing well and its cash flow is positive. There’s still a lot to like about Netflix. The stock fell around 37% in January, and a further decline due to a market pullback will make it even more attractive.
2. Limited Sea
Sea Limited (NYSE: SE) is another stock that had a bad January, dropping nearly 33%. The company is not for the faint of heart, and a golden future is not assured as it is a relatively richly valued growth stock that exhibits rapid revenue growth but no profitability yet.
Still, Sea Limited is worth watching and considering, especially if a market pullback drives its shares down much further. With a recent market value of $87 billion, it is a force in Asia, operating in multiple promising fields. As the company describes itself:
We operate three core businesses in digital entertainment, e-commerce, and digital payments and financial services, known respectively as Garena, Shopee and SeaMoney. Garena is one of the world’s leading developers and publishers of online games. Shopee is the largest pan-regional e-commerce platform in Southeast Asia and Taiwan. SeaMoney is a leading provider of digital payments and financial services in Southeast Asia.
Sea’s third quarter saw revenue up 121.8% year over year, according to generally accepted accounting principles (GAAP), with operating profit up 147.5%. This is all very good and promising, as are the company’s plans to expand into Latin America and Europe, but until it becomes reliably profitable, it warrants some caution. Businesses sometimes fail when they try to do too much and end up without the resources to fully achieve their goals.
That said, do your own digging into this wildly popular stock to see what you think.
3. Zoom Video Communications
Focus on video communications (NASDAQ: ZM) has almost become a household name with its popular Zoom video conferencing technology which is widely used by businesses and consumers. The pandemic has been a very strong tailwind, and while some wonder if the end or decline of the pandemic will be bad news for Zoom, there’s reason to think it won’t.
For one thing, video conferencing seems here to stay, especially as more and more workers work remotely by choice. The company has innovated, also adding more features to its video conferencing product, which should help it attract and retain more users. Zoom also has other irons in the fire, like its Zoom Phone technology for business. In less than three years, Zoom Phone operates in more than 40 countries and has sold more than 2 million “seats”.
Zoom has built its own ecosystem, which many customers will find difficult to leave once they start using various services and features. This can give Zoom significant pricing power, allowing it to increase its rates over time without losing too many customers. The future of the company looks bright. With its shares recently down about two-thirds from their 52-week high, a further drop will make them even more attractive.
These are just a few companies to consider for your portfolio in the event of a market downturn. It’s a good idea to maintain a watchlist of companies you’d like to invest in, so that when the market heads south, you’ll be ready with a shopping list.
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Selena Maranjian owns Netflix. The Motley Fool owns and recommends Netflix, Sea Limited and Zoom Video Communications. The Motley Fool has a disclosure policy.