You might not like what I’m about to say, but it’s the truth: Stock market crashes and corrections are par for the course when investing on Wall Street.
Since the beginning of 1950, the benchmark S&P 500 has undergone 39 separate corrections totaling at least 10%. That’s a double-digit decline, on average, every 1.85 years. But excluding the ongoing correction, each of the previous 38 downturns were eventually wiped away by a bull market rally. In other words, if you buy great stocks and hang on to them for the long haul, sell-offs represent the perfect opportunity to put your money to work.
Best of all, you don’t need a mountain of money to build wealth on Wall Street. With most online brokerages shelving commissions and minimum deposit requirements, any amount of cash — even $3,000 — can be the ideal amount to go shopping for bargains.
If you have $3,000 ready to invest, which won’t be needed to cover emergencies or pay bills, the following three stocks stand out as screaming buys during the market sell-off.
One of the smartest ways to invest during a plunging market is to buy stakes in highly defensive companies that provide a basic necessity good or service. A perfect example is the largest electric utility stock in the country, NextEra Energy (NEE 0.30%).
Since hitting an all-time high a little over four months ago, shares of NextEra have fallen 24%. To put into context how rare of a decline this is, NextEra has delivered a positive total return, including dividends paid, in 19 of the past 20 years. It has an incredible track record of making patient investors richer.
The obvious benefit of owning an electric utility stock is the predictability of operating cash flow. No matter how well or poorly the stock market or U.S. economy are performing, energy consumption patterns don’t change much from one year to the next. If you own a home, there’s a good likelihood you’ll need electricity to power your appliances.
What’s more, NextEra Energy brings differentiation to the table that you won’t find with most electric utilities. No utility in the country is generating more capacity from solar or wind than NextEra — and with an aggregate of $50 billion to $55 billion invested in predominantly green energy projects between 2020 and 2022, it’s unlikely the company will be surpassed for its renewable energy crown anytime soon.
While costly, these green energy projects are helping to reduce electricity generation costs, and are ultimately driving the company’s compound annual growth rate into the high single digits. By comparison, most utility stocks are growing by a low single-digit percentage each year.
Though NextEra Energy trades at a premium to other utility stocks, its track record shows it’s well worth it. The company’s 24% pullback is the perfect excuse to put $3,000, or some fraction of this amount, to work.
Another stock that’s a screaming buy during this broad market sell-off is specialty biotech stock Vertex Pharmaceuticals (VRTX -2.17%). Shares of the company hit their 52-week high a month ago, but have since declined by more than 19%.
What makes healthcare stocks such genius buys in a plunging market is their highly defensive nature. Regardless of whether the stock market is flying or falling, people will continue to get sick and require care. This provides a base level demand expectation when it comes to prescription drugs, medical devices, and healthcare services.
The aspect that makes Vertex such a desirable stock to own is the company’s success in helping patients with cystic fibrosis (CF). CF is a genetic disease characterized by thick mucus production that can obstruct a patient’s lungs and/or pancreas.
Despite there being no cure for CF, the company has developed four generations of mutation-specific therapies that help to improve patients’ lung function. The newest of those treatments, Trikafta, was approved by the U.S. Food and Drug Administration (FDA) five months ahead of its scheduled review date. Trikafta brought in $1.76 billion in net sales for the March-ended quarter, putting it on pace for $7 billion in full-year revenue for 2022.
Vertex has an impressive pipeline beyond CF, too. In spite of its experimental type-1 diabetes treatment, VX-880, being placed on clinical hold by the FDA, the company has other novel therapies targeting beta thalassemia, sickle cell disease, APOL1-mediated kidney disease, Duchenne muscular dystrophy, and pain.
Thanks to its CF franchise, Vertex Pharmaceuticals is rolling in the dough. The company ended March with $8.24 billion in cash, cash equivalents, and marketable securities. This is more than enough capital to run multiple clinical trials, fund additional research, and possibly even go shopping. At a little over 15 times forward-year earnings, Vertex looks like an incredible bargain.
The third screaming buy that can confidently be bought with $3,000 during the market sell-off is semiconductor solutions stock Broadcom (AVGO -2.46%). Shares of Broadcom have tumbled 17% below their all-time high, which was hit in late December.
The big worry Wall Street has for Broadcom is the growing prospect of a recession. Historically high inflation and mounting geopolitical tensions have set the stage for the U.S., and possibly the global economy, to shrink. Since semiconductor stocks are cyclical, Broadcom hasn’t been immune from the selling.
However, Broadcom has a couple of advantages that should allow it to weather a downturn better than most chipmakers. For example, a majority of the company’s sales derive from the wireless chips and solutions used in next-generation smartphones. Having wireless access and owning a smartphone have become borderline basic necessities. Even if the U.S. dips into recession, I’d be surprised to see a substantive drop-off in smartphone sales.
To add to this point, it’s been around a decade since telecom companies last upgraded wireless download speeds. The push to 5G should incentivize consumers and businesses to replace their devices. For Broadcom, this should lead to steady wireless chip demand. As a reminder, the company ended 2021 with a record backlog of $14.9 billion, and it was booking orders well into 2023. From an investment perspective, this backlog provides a lot of operating cash flow protection that other semiconductor stocks may not have.
As I’ve previously pointed out, Broadcom’s growth potential is even more pronounced in its ancillary segments. For instance, the company supplies connectivity and access chips used in data centers. With businesses moving their data into the cloud at an accelerated pace in the wake of the pandemic, data center infrastructure demand should remain strong. The company also provides connectivity, optical sensing, and wireless communications solutions for next-gen vehicles.
If you still need more convincing, how about this: Broadcom has increased its quarterly dividend by more than 5,700% since December 2010.
At less than 15 times Wall Street’s forward-year earnings forecast, Broadcom looks like an absolute steal.