The S&P 500 index currently trades at 26.3 times earnings. That’s well above its long-term average of roughly 16 times earnings.
Does that mean a market crash is coming? Not necessarily. Rising corporate profit margins have pushed market price-to-earnings ratios higher over the past two decades. And AI growth could justify the rich valuation.
Missed AI’s “Act 1”? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
But above-average valuations tend to revert at some point. Whenever the next downturn happens, I’ll likely be buying more of one particular growth stock.
Uber Technologies can thrive in both bull and bear markets
Uber Technologies (NYSE: UBER) currently trades at just 15 times earnings. Its free cash flow yield is roughly 7%.
Why is Uber stock so cheap? Bears worry that the robotaxi industry will hurt Uber’s core business. But as hedge fund manager Bill Ackman recently quipped, “When a company becomes a verb, that’s a pretty good sign it’s in a dominant position.” In my view, Uber could actually grow stronger as robotaxis scale up, given its position as the central platform for mobility demand.
During a market correction, expect Uber shares to decline, as they have in previous downturns. But the company’s high levels of cash generation should blunt much of the pressure. Economic disruptions, meanwhile, could improve its driver supply even further as dislocated workers seek additional gigs. Struggling competitors such as Lyft (NASDAQ: LYFT) will likely cede even more share to a better-financed Uber during an economic downturn.
Uber stock isn’t a perfect safe haven during a bear market. But the company has enough funds to continue investing over a prolonged period of market pain. I expect the company to emerge from any downturn with a stronger competitive position than when it entered.
Should you buy stock in Uber Technologies right now?
Before you buy stock in Uber Technologies, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Uber Technologies wasn’t one of them. The 10 stocks that made the cut are built for long-term growth and could produce monster returns in the coming years.
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