After a brutal 2022, the stock market started off 2023 hot, with the S&P 500 hitting a high of 4,195 in early February. But since then, the broader market index has fallen 6.7%. This has investors wondering where the market may bottom and what are the must-buy stocks for a market low.
It wouldn’t take that much of a decline for the S&P 500 to lose support. A 5.3% fall from Friday’s closing level would land the index below its December low. That would spark some concern and have investors wondering what to do if the stock market made new 52-week lows.
If we do retest those lows, that would mean a drop of more than 18%. Ouch. But it’s always best to be prepared. With that in mind, here are some must-buy stocks for a market low.
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Retail stocks haven’t been getting a lot of attention and, in fact, many have been trading quite poorly. Starbucks (NASDAQ:SBUX), for instance, is essentially flat on the year versus a 2% gain for the S&P 500.
However, SBUX held up pretty well overall. Since bottoming in May, shares are up roughly 44%. And while the market was breaking down in the third quarter and bottoming in mid-October, Starbucks weathered the storm quite well. In fact, at its fourth-quarter low, shares were still up nearly 20% from their 2022 low.
No one knows what’s next for the market, but Starbucks has kept its loyal customers close. As such, analysts are looking for more growth. Consensus expectations call for more than 11% revenue growth both this year and next. On the earnings front, estimates call for 15% growth this year and 20% growth next year.
So, if the market tanks down to new lows, I’ll be looking to buy the dip in this high-quality name.
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Salesforce (NYSE:CRM) was on my previous “must-buy” list with a fantasy price in the $115 to $125 zone. Since bottoming at $126.34 in December — ouch, just missed it! — the stock has been on a tear, up 46%.
On the decline, the stock attracted five activist investors. As a result, management seems to have their bottom-line priorities figured out.
When the company reported Q4 earnings, it beat on the top and bottom lines. Guidance for the current quarter and the full year also impressed. CEO Marc Benioff and company seem to have things figured out and, as he pointed out, operating cash flow is impressive for a firm of its size.
Analysts expect double-digit revenue growth for several years, alongside 36% earnings growth this year and 24% growth next year. Those numbers may not come to fruition if there is a big downturn in the economy. However, finding those types of growth numbers anywhere right now is a tough ask.
At 26 times forward earnings, I don’t feel that CRM stock is all that expensive given its growth rates.
Last but not least is Nvidia (NASDAQ:NVDA). Admittedly, the stock is expensive, trading at more than 53 times forward earnings. And, yes, it has run a tremendous amount. Shares are up in 10 of the past 11 weeks and have climbed more than 75% this year and 138% off the October low.
My gut feeling is that we won’t see the October low again. That’s why I was comfortable saying Nvidia was a buy near $125, even if it dropped “into the $110 to $115 zone.”
Analysts are optimistic about the year, calling for 34% earnings growth. They expect roughly the same growth rate next year. That still doesn’t make Nvidia stock cheap necessarily, but this is a best-in-breed secular growth company. These types of stocks don’t come cheap. And if you wait around for it to trade at sub-20 times earnings, you’ll either be waiting an awfully long time or you’ll wait so long that all the growth will be gone.
I don’t know where Nvidia will dip to if the market makes new lows, but it will be one that I’ll be looking at as a buy setup — again.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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