How The Stock Market Crash Can Be A Big Opportunityby Preston Davis May 28, 2022
“Stock market crash” are three words that often conjure up calamity – but what if, instead, they were a call to opportunity?
Sure, Wall Street crashes and corrections can be extremely scary, and a bellwether of change. The month of May 2022, the S&P 500, the Nasdaq Composite, and the Dow each logged some of their largest single-session point declines ever, and it’s unclear how low they will go.
Unpredictability is almost always unnerving, and whenever big declines take place investors can start to feel queasy. Market declines, however, can lead the way to excellent opportunities where great stocks can be had for lower-than-usual prices.
What Goes Down Usually Comes Up
History, so they say, bears repeating, especially when it comes to stock market trends. The S&P 500 has experienced 39 double-digit percentage declines since 1950, which averages out to a double-digit correction happening every 1.85 years. Each of the previous 38 corrections (not yet figuring in the ongoing, current decline) have been followed and wiped away by a rallying bull market. It stands to reason, then, that if you invest in great companies and have the patience to allow that investment to grow over time, it’s a good bet your wealth will grow.
Three Stock Options Worth Considering
When the market takes a dive, it can be a great opportunity to get your feet wet in terms of purchasing stock. The current state of trading has resulted in the following three companies being regarded as standouts for those looking to score a bargain that could pay off big in the long run.
Trulieve Cannabis | (TCNNF 3.24%)
Trulieve Cannabis shares have lost close to three-quarters of their value since they hit an all-time high about 14 months ago. After President Joe Biden took office, many expected that cannabis would be legalized federally, but no marijuana reforms have passed thus far. The result? Wall Street has not been kind to multi-state operators (MSO) like Trulieve Cannabis. On the upside, three-quarters of all states have legalized marijuana in some capacity, and as long as the federal government continues to allow individual states to regulate their own pot industries, MSOs can take advantage of a wealth of opportunities.
Trulieve Cannabis is unique among MSOs because it has focused almost exclusively on expanding its business in Florida. The Sunshine State is a medical marijuana-legal market, and Trulieve boasts control of nearly half of all flower and cannabinoid oil sales.
Because Florida is regarded as one of the nation’s highest-dollar cannabis markets, Trulieve was able to grow brand awareness without significant spending on developing market awareness. Not surprisingly, Trulieve became profitable more than three years ago.
Need another reason to buy? Trulieve acquired MSO Harvest Health & Recreation, which closed last year, which allows Trulieve to be dominant in the Arizona market. It’s believed that cannabis sales in Arizona could eventually top $1 billion annually.
The Bottom Line: Shares of the company are currently changing hands at 20 times forward-year earnings despite a sustained growth rate of 20%, if not higher.
Wells Fargo | (WFC 2.94%)
During the past three months, shares of the company have lost approximately a quarter of their value. One of the major issues affecting the value of this company’s stock is the fact that Wells Fargo admitted in 2017 to opening 3.5 million fake accounts from 2009 to 2016. Both the loss of consumer trust and multiple CEO comings and goings created valuation troubles.
But punishment in the form of fines has been meted out, and Wells Fargo business operations appear to be back on track. It’s worth noting that the cyclical nature of banks is what makes them so appealing as an investment opportunity when economic downturns and market crashes occur. Recessions may be inevitable, but the good news is that they usually last no longer than a few months or a couple of quarters. Economic expansions, however, can span years, and bank stocks are well-suited to making the most of the natural expansions that occur within the U.S. economy.
Wells Fargo could also benefit from the higher interest rate recently approved by the Federal Reserve. Wells Fargo can collect additional net interest income on its many outstanding variable-rate loans, which means the company is poised to realize 24% higher earnings next year.
The Bottom Line: At this time, investors can buy Wells Fargo just above its book value and for less than 9 times forward-year earnings.
General Motors | (GM 7.42%)
The auto industry has always been cyclical, with ups and downs that can put the brakes on many an investor looking for a smooth road. But long-term investors tend to know a good thing when they see it, and General Motors fits the bill.
The electrification of consumer vehicles and enterprise fleets is happening, which should lead to a multi-decade vehicle replacement cycle that allows GM to become a standout in the electric vehicle (EV) market and, consequently, improve its operating margins. Last year, GM significantly increased spending on EVs, battery research, and autonomous vehicles. Additionally, plans are in the works to produce more than 1 million EVs annually in North America by the end of 2025. GM has already received more than 140,000 reservations for the Chevy Silverado EV, which was just introduced in January 2022.
What’s more, GM has delivered 2.9 million vehicles (mostly combustion-engine) to China, the world’s largest auto market. It appears that GM should have an easy ride when it comes to snagging the sizable EV market share in China.
The Bottom Line: Shares can currently be purchased for about 5.7 times forward-year earnings despite the company’s sales growing faster than they have over the past several years.