All the major market indexes have hit new highs this year, but it’s always a good idea to have a list of stocks ready that you won’t hesitate to buy if they suddenly go on sale.
Historically, market declines of 10% or more from the previous high occur roughly once every two years. Nasdaq Composite Index Having undergone a gradual correction almost a year ago, investors need to prepare for a possible renewed decline over the next year or so.
One indicator that continues to weigh on the market’s near-term outlook is an inverted yield curve — a condition in which short-term Treasury yields are higher than long-term Treasury yields. This condition has preceded nearly every economic downturn in the past 50 years and has been inverted since July 2022.
Market declines make many investors nervous, but the longer you invest, the more likely you are to view these declines as an opportunity to buy your favorite companies at lower valuations, positioning you for bigger gains when the market recovers.
With that in mind, here are two blue-chip stocks that investors shouldn’t hesitate to buy during the next market drop.
1. Apple
apple (Nasdaq: AAPL) is one of the most recognized brands in the world. The company has an installed base of 2.2 billion active devices. Combined with a cash-rich balance sheet and $101 billion in free cash flow from product sales, the company is unstoppable and worth buying on the dip.
Apple’s stock price soared to new highs this week as the company held its Worldwide Developers Conference and unveiled a suite of new artificial intelligence (AI) features, called “Apple Intelligence,” coming to iOS 18 that could spark a strong upgrade cycle for the iPhone.
The company’s stock price has been flat to declining through the first half of this year as iPhone sales growth slowed last year. The stock is up just 11% so far this year, lagging the Nasdaq’s 17% gain, but Apple’s growth has historically boomed in conjunction with new product launches that improve hardware and other features. Apple Intelligence brings several conveniences to iPhone users, including document summarization and the integration of OpenAI’s ChatGPT into Siri, which could motivate those with older devices to upgrade.
Apple Intelligence is a free feature included in iOS 18, but it doesn’t work on older devices with previous-generation processors. It requires the A17 Pro chip found in the iPhone 15 Pro and iPhone 15 Pro Max. It also works on iPads and Macs with M1 chips and later versions. These AI features require more processing power, but Apple offering them is also a good strategy to boost sales of premium devices and increase profits, which will benefit shareholders.
Apple shares are trading at a premium forward price-to-earnings ratio of about 31 times. If Apple sees strong demand for its newest devices when iOS 18 is released this fall, it could accelerate revenue growth to justify that premium. Either way, Apple should be high on your shopping list when the next market opens.
2. Microsoft
Microsoft (Nasdaq: MSFT) Over the past decade, the company has transformed from a company dependent on the slow-growing PC market into a fast-growing cloud services provider. It’s not easy for large companies to change strategy in a changing competitive environment, but Microsoft has demonstrated the ability to quickly adapt to new opportunities, a clear sign that it is an unstoppable company.
The company’s stock has performed well recently, buoyed by solid growth across its business. Microsoft is well positioned to benefit from the latest technology revolution as it introduces new AI-powered features to its consumer and enterprise products.
The company’s software and subscription-based services generate huge, high-margin revenue, helping it fund heavy spending on cloud computing infrastructure to meet growing demand for its AI services. Microsoft’s revenue grew 17% year-over-year last quarter, driven by balanced growth in its Office software and enterprise cloud services.
Microsoft is monetizing AI across a range of products and services. It currently offers AI capabilities in its Office apps, Windows, and GitHub coding platform. The company’s Copilot AI assistant is now used by around 60% of Fortune 500 companies. Revenue from its Productivity and Business Process segment, which includes Office and Microsoft 365 subscriptions, grew at a healthy 12% year-over-year rate last quarter.
Microsoft is solidifying its lead in the software space and becoming the face of AI to the millions of people who use its software every day. The stock is currently expensive at 36 times forward P/E, but buying at a lower valuation during a market downturn could be well worth it.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends Apple and Microsoft. The Motley Fool has a disclosure policy.
The post 2 Unstoppable Growth Stocks to Buy If the Stock Market Plummets was originally published by The Motley Fool.
