If you can keep your head when all about you are losing theirs...
-- Rudyard Kipling
This has been a year to remember, and it isn't over yet. Investors have already had a front row seat for the fastest bear market decline in stock market history, followed by an equally rapid recovery for much of the market. Unfortunately, the broader economy hasn't recovered as quickly as the market. While the unemployment rate has abated somewhat from its recent record highs, it still stood at an astonishing 7.9% in September, which is high by any measure.
This has some investors waiting for the other shoe to drop and the market to turn downward again, with some prominent market watchers warning about the looming potential for a double-dip recession.
While we don't know what the future will bring, there's little doubt that another crash is always potentially somewhere on the horizon. Whether it comes now or later, stocking your portfolio with strong companies that have solid growth prospects can help minimize any temporary discomfort.
Let's look at three disruptive companies that will be thriving long after the next market drop.
Image source: Getty Images.
1. Amazon: As other industries suffered, e-commerce soared
It shouldn't be surprising to find Amazon (NASDAQ: AMZN) on this list. Even as the pandemic took hold and provided a catalyst for the market downturn that dominated headlines in February and March, Amazon stock held its ground, never falling more than 12% from peak to trough. That's not all. Since bottoming in late March, Amazon has come roaring back, gaining 75% in the months since. What provided the tech titan with the resilience to hold its own during the darkest days, just to become an outperformer when the stock market regained its footing? In a word, consumers.
Amazon Prime boasted an estimated 112 million subscribers in the U.S. to close out 2019, according to Consumer Intelligence Research Partners. Wanting to get the most bang for their buck, the majority of these subscribers aren't likely to curtail their spending on the platform.
In fact, as the pandemic raged across the world, consumers turned to digital shopping in droves. As the world's largest e-commerce retailer, Amazon gained legions of new customers. This was evident in the company's net sales, which jumped 26% year over year in the first quarter. Not to be outdone, sales in the second quarter accelerated, increasing by 40% year over year, while net income nearly doubled.
At the same time, overall e-commerce growth soared 44% year over year in the U.S., but still accounts for just 15% of total retail sales. This shows that the trend is ongoing, with plenty of room to grow from here.
With its industry-leading position, Amazon is uniquely positioned to take advantage of the strong tailwinds, giving the company a long runway for growth.
Image source: Getty Images.
2. NVIDIA: A key part of the cloud computing and AI equation
While a number of industries were punished by the market crash that began in February, not all industries were equal. Cloud computing quickly emerged as a safe haven for companies sending their staff home to work remotely, accelerating the digital transformation that was already ongoing. While the next market crash will be different, once a business has adopted cloud computing, there's simply no going back. One company uniquely positioned to benefit from the trend is NVIDIA (NASDAQ: NVDA), the pioneer of the graphics processing unit (GPU).
While the company isn't a cloud provider as such, its processors are a mainstay in every top cloud computing platform, including Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud, just to name a few. The parallel processing capability -- or the ability of the GPU to handle multiple complex mathematical calculations simultaneously -- made it a perfect fit for the unique processing requirements of data centers, as well as artificial intelligence and machine learning applications. As demand for cloud computing increased, NVIDIA reaped the benefits.
Need further proof? For the second quarter, NVIDIA generated record revenue that grew 50% year over year, driven by a record-setting contribution from its data center segment, which surged 167%. Adjusted net income for the period soared 79%. Gaming also put in a strong performance, as demand for processors used by gamers helped drive segment revenue up 24% year over year to near record levels.
Demand for cloud computing may fluctuate, but it isn't going away, putting NVIDIA in a strong position for future growth.
Image source: Getty Images.
3. The Trade Desk: Bucking the broader advertising slump
It may seem counter-intuitive to recommend an advertising company as a buy for the coming market crash. After all, marketing and advertising budgets are among the first to get slashed during an economic downturn. However, The Trade Desk (NASDAQ: TTD) is no normal advertiser.
Just to be clear, The Trade Desk stock took it squarely on the chin during the downturn, losing 46% of its value over a one-month period. Investors feared the programmatic advertising specialist would get pummeled along with every other company that peddled ads to consumers.
Then, a funny thing happened: The Trade Desk showed why it's best in breed and has outpaced its rivals for several years running. The company's cutting-edge platform can process 9 million ad impressions and quadrillions of permutations each second to ensure the ad is targeted to the right consumers.
At the same time, cord-cutting hit a fever pitch, sending advertisers scrambling to reach consumers where they lived. Over the past several years, The Trade Desk has been expanding its omnichannel approach. Its audio revenue grew 185% year over year in 2019, while connected TV climbed 137%. Mobile in-app and mobile video also impressed, jumping 67% and 50%, respectively.
Even as the pandemic crimped its results for the first half of 2020, The Trade Desk eked out gains at the expense of the competition, with revenue that grew 7% year over year, even as rivals reported steep year-over-year losses. During the same period, net income jumped 29%, as advertisers sought more bang for their buck and turned to The Trade Desk as their knight in shining armor.
In a time of economic uncertainty, advertisers may reign in spending, but it isn't going away completely. The ability to reach customers where they are gives The Trade Desk a decided advantage.
Data by YCharts
A picture paints a thousand words
Even though these stocks were all punished to some extent during the rapid-fire market decline, the chart shows how things have progressed since then. So far in 2020, even taking that early year slump into account, Amazon, NVIDIA, and The Trade Desk have gained 81%, 131%, and 137%, respectively -- far exceeding the performance of the broader market.
When preparing for the next stock market crash, investors shouldn't just concern themselves with what happens when the panic sets in, but also with what happens once it's over.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares), Amazon, Microsoft, NVIDIA, and The Trade Desk. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Microsoft, NVIDIA, and The Trade Desk and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.
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