Nasdaq Market Liquidation: Should You Buy Stocks Now?


On 15 Nov 2021, Nasdaq Composite Index shares hit an all-time high of 16,057 – and it all went down from there.

Since hitting its peak, in fact, the Nasdaq has been selling hard, falling 34% through Thursday’s close. And since it only takes a 20% decline from peak to trough to meet the definition of a bear market, well, we’re definitely in a bear market now. there is no doubt.

Instead, the questions many investors ask are how close we are to the end of the bear market and is it safe to start buying stocks now?

^ IXIC data by YCharts.

What the story says

These are excellent questions. (But these aren’t necessarily the right questions to ask – more on that in a bit).

According to research by The Washington Post, the US economy has survived seven separate bear markets over the past 40 years. Stock investors suffered losses ranging from 27% to 52% from peak to trough during these downturns, and the average loss was 35%. Given that the Nasdaq is already down 34% today, this therefore suggests that we could very well be near the bottom of the current bear market.

Or maybe we are not. History may rhyme, but there is no guarantee that it will repeat itself.

It should also be noted that, according to the Jobthe average bear market since WWII has lasted 23 months from peak to trough and back to peak – but by this measure, our current bear is just a cub, at just seven months old.

Again, whether or not this is the right time to buy largely depends on how you look at the numbers. According to research examining recessions dating back to the Great Depression, it appears that it only takes about 10 months, on average, for a stock market to fall from peak to low during a recession. (The other 14 months are spent regaining the initial peak).

No matter how long it takes to win back the initial peak, however, once you hit the bottom and start to rally higher, that’s exactly the right time to buy! And given that we are seven months away in the current bear market, we may be approaching that point.

A better question

So should you buy stocks now? Judging by the story, the answer certainly seems to lean toward “yes.” And yet, I wonder if this is perhaps not the right question to ask.

A better question might be: While we don’t know exactly how long the bear market will last, we certainly know that the stock market has already fallen a lot and many stocks have become cheaper. So are there any specific stocks that are already cheap enough to buy, no matter how long the bear market lasts?

And the answer to that question is a much clearer “yes.”

Judging solely by my own personal stock shopping list, I’ve already spotted a good dozen or more stocks that are cheap enough for me to sit down and start buying cautiously as the market continues to fall. These include:

  • Growth stocks trade at deep discounts to their intrinsic value, like social media’s beat pick pinterest (NYSE: PINS)which sells for just 17 times free cash flow (FCF) but has an expected long-term earnings growth rate of 54%, according to analyst forecasts.
  • Dominant is playing on a travel revival as summer 2022 arrives. Reservation of credits (NASDAQ: BKNG) fits that bill with a slower projected growth rate of 20%, according to data from S&P Global Market Intelligence, but a valuation just as cheap as Pinterest’s at FCF 17 billion.
  • Even more gigantic companies that are not enough as cheap as I’d like but I’m getting there. MasterCard (NYSE: MA) falls into this category. At 32 times FCF, that’s far from “cheap,” but with long-term growth of 25% predicted for that and the potential to see revenue rise as consumers spend big on gasoline this summer – and indeed, for the foreseeable future – I think this is a great stock to watch.

And for investors, that’s really good news. You don’t have to wait for the bear market to end. Whether or not the Nasdaq selloff has run its course, these three stocks — likely many more — are already cheap enough to buy right now.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Booking Holdings, Mastercard and Pinterest. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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