The stock market has been soaring since April, with the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) all hitting new all-time highs.
Markets are now up for the year, with the Nasdaq leading the way, up 13% after falling 10% in the first quarter.
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While corporate earnings have been strong, the economy is brittle, with inflation rising, the labor market weak, interest rates high, and much geopolitical uncertainty. Could the market plunge again anytime soon? It is impossible to know, but corrections happen all the time, especially when valuations are abnormally high, like they are now.
Investors should always be prepared for bear markets, crashes, and corrections when constructing their portfolios. That means building a diversified group of stocks and exchange-traded funds (ETFs) that balance each other out to navigate rough patches.
But retreats are also perfect opportunities to build your portfolio. The glass-half-full investor actually sees the long-term benefit of a sell-off because they can buy great stocks at lower prices. Here are three stocks Iʻd load up on if there were a tumble.
1. Nvidia
Nvidia (NASDAQ: NVDA) is one of the greatest companies in the world and the most valuable. It is at the center of the artificial intelligence (AI) revolution, making the chips that power AI applications and data centers. Within the booming data-center segment, Nvidia holds close to 90% of the market, so its earnings power is huge and the business has a long runway.
On May 20, Nvidia posted fiscal first-quarter earnings (for the period ended April 26), with revenue rising 85% to $81.6 billion and data-center revenue jumping 95% year over year. Earnings skyrocketed 211%. For Q2, Nvidia is targeting $90 billion in revenue and a ridiculous 74.9% gross margin.
The issue with Nvidia isnʻt about growth. With Nvidia, the buying decision is always about valuation. When things get overheated, you take a pause. When things dip, as they did after Q1, you buy.
Nvidia stock is up about 15% this year, but it’s still relatively cheap, with a forward price-to-earnings (P/E) ratio of 27 and a price-to-earnings growth (PEG) ratio of 0.72. Anything less than 1 is typically considered undervalued relative to its growth prospects. So, it’s a buy right now, and it will be an even better buy if the stock market tanks.
