These quality companies could be purchased at lower prices during market sell-offs.
Investors have been on a rollercoaster ride this month due to the Federal Deposit Insurance Corporation (FDIC) shutting down multiple banks.
There is nothing more nerve-racking for investors than times like these. During the past month, the S&P 500 has declined by approximately 6%. If the market pulls back further, it is essential to take advantage of lower prices to buy quality companies.
There are three stocks to consider adding during a market pullback, Visa (V 0.12%), Nvidia (NVDA 1.60%), and Intuit (INTU -1.36%). Let's find out a bit more about these stocks.
Payments can be made with Visa debit cards, credit cards, and other methods worldwide. No one does more business than Visa when it comes to processing payments. The volume of transactions processed by Visa in 2021 totaled $13.5 trillion. The volume of this card far exceeds that of its nearest competitor, Mastercard, by over 75%.
Its assets are relatively light, so Visa does not spend much on inventory or equipment. Consequently, its profit margins have averaged over 45% over the past decade. Moreover, the company generated $17.7 billion in free cash flow last year, which can be used for a variety of purposes such as paying down debt, rewarding shareholders with dividends and stock buybacks, or investing in the company itself.
With inflation running high, it has remained resilient this year. Net revenue grew by 12% and transactions increased by 10% in its recent quarterly earnings. Visa's bottom line could suffer if we enter a recession. Despite short-term headwinds, it has a strong balance sheet.
During an economic downturn, companies with lower debt are less likely to default or file for bankruptcy. In terms of debt-to-equity ratios, Visa uses only relatively little leverage to finance its operations. A downturn would not be a problem for the company since it has $13.3 billion in cash and cash equivalents on its balance sheet.
A few of the services Intuit offers to consumers and small businesses include tax preparation, saving money, paying off debt, and managing finances.
Small businesses and self-employed businesses account for half of their revenue, which includes QuickBooks, a software program used by small businesses to manage finances, track time, and process payroll. In addition to TurboTax software and assisted tax prep, its consumer segment generates 31% of the company's revenue.
No matter how we feel about it, we have to do our taxes every year, and Intuit's top-ranked tax platform makes it more resilient when the economy turns south. According to Trade Algo, TurboTax holds 73% of the tax prep market in 2021. Another positive aspect of Intuit's business if a recession occurs is its debt-to-equity ratio of 0.45.
The core addressable market for Intuit's TurboTax and QuickBooks platforms is estimated to be $81 billion. The company sees $253 billion in an addressable market in the U.S. as well. Credit Karma, a credit tracking tool, and Mint, a personal finance platform, are included in this market.
As a result of growth in its small business and self-employed segments as well as consumer spending, Intuit's latest quarterly earnings increased 13.7% year over year. When the next market downturn comes, Intuit is another solid stock to add to your portfolio.
A GPU is a computer processor that makes video game graphics as advanced as they are today. Nvidia designs these devices. Artificial intelligence (AI), robotics, metaverse, and cryptocurrency mining are some of the industries leveraging its GPUs today. Several levers make Nvidia resilient to downturns because its products are widely used.
It faced declining consumer spending on gaming video cards last year, which caused gaming sales to drop 27%. In contrast, its Nvidia AI cloud service offering led to a 41% increase in data center revenue. Its cloud service involves multiyear contracts that enable customers to train AI models using Nvidia's infrastructure.
In addition to its automotive revenue, the company's revenue grew by 60%. Its electric vehicle and self-driving vehicle products generated strong demand here. With $27 billion in revenue, Nvidia had a similar year to last.
A buildup of graphics card inventory is one of the company's near-term headwinds. Unsold inventory was written down last year, reducing adjusted earnings by 25%. Short-term earnings could be affected by Nvidia's need to work through these inventories.
In the long run, it remains a stellar investment. A report published by Trade Algo predicts that by 2027, the GPU market will reach $200 billion with a 33.6% compound annual growth rate. A $300 billion segment is allocated to automotive, with another $300 billion allocated to chips and systems that use the company's hardware, according to Nvidia.
In the event that the market continues to plummet, Nvidia's GPU dominance has made it a solid buy.
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