Fears of a stock market crash appear to have subsided over the last year. The worst of the bear market that began in 2022 has turned into a rebound this year, driven in part by excitement over new generative artificial intelligence (AI) technologies and signs that the economy has been more resilient than expected. More recently, investors are increasing their bets that the Federal Reserve is done raising interest rates, with some predicting it could even start lowering them in the first half of 2024.
However, there's a risk of a stock market crash in any environment. A black swan event could sink markets overnight, and even more routine threats to investors typically begin unseen. Meanwhile, there's still a risk of a recession heading into 2024.
Savvy investors know that crashes, though painful, can be buying opportunities, especially for stocks that are proven winners. On that note, keep reading to see two stocks that would be great buys in a stock market crash.
The past few years have acted as a crucible for stocks as companies have had to endure and adapt to a pandemic and the economic shifts that it caused, followed by the unraveling of those trends in the economic reopening as pre-pandemic behavioral patterns reestablished themselves.
Few stocks have handled the volatility of the last few years as well as MercadoLibre (NASDAQ: MELI), the Latin American e-commerce and digital payments company. The chart below helps illustrate the company's performance.
As you can see, revenue growth surged during the pandemic, but it has remained strong even as it's come down in the reopening, reaccelerating in the most recent quarter. Currency-neutral revenue growth is even stronger, coming in at 69% in the third quarter.
What's more impressive is how the company's operating margin has surged, even in an environment that has challenged most of its e-commerce and digital payments peers. That's evidence of the company's competitive advantages, which include a network of interconnected businesses like e-commerce, digital payments, logistics, and consumer financing.
The company has also leveraged the strength of core businesses like e-commerce to add on higher-margin businesses like advertising, consumer financing, its third-party marketplace, and digital payments. That explains why its operating margin reached a record of 18.2% in the third quarter.
What's also notable about the chart above is that the stock declined sharply from its peak in 2021, even as its underlying performance remained strong. If this pattern repeats itself in the next market crash, MercadoLibre looks like a clear no-brainer buy.
2. Remitly Global
Another payments company that looks like a smart buy in a market crash is Remitly Global (NASDAQ: RELY), a digital-first remittance specialist. Remitly helps millions of immigrants send money to loved ones back home, and it's disrupting traditional leaders like Western Union and Moneygram.
Most of the payments industry is cyclical, subject to business health and consumer discretionary spending, but remittances are the exception to the rule. That's because these are essential payments for relatives back home. The International Monetary Fund found that during the Great Financial Crisis, migrants received lower incomes, but absorbed those losses by cutting consumption or rent spending, continuing to send money back home. Globally, both remittances and migrants continued to rise during the recession that started in 2008.
That bodes well for Remitly, which was founded in 2011 but has grown rapidly. In its most recent quarter, revenue rose 43% to $241.6 million, driven by 42% growth in active customers to 5.4 million and a 36% increase in send volume to $10.2 billion. The company also flipped to a profit on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis with $10.5 million in EBITDA, compared to a loss of $3.7 million in the quarter a year ago.
The stock actually fell on the news. High expectations seemed to be baked in coming into the report, even as it raised its full-year guidance, and shares have been volatile since the stock's 2021 IPO.
Despite the pullback, Remitly is rapidly penetrating an addressable market of close to $1 trillion. An extended pullback in a stock market crash would look like a good buying opportunity, especially as the company's business is unlikely to be significantly affected by a downturn.
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