A stock market crash, correction, or pullback may not be far off now. Since late March 2020, stocks have had an amazing run. History suggests that, sooner or later, we’re likely to see some volatility in the market.
Of course, if you’re a long-term investor like myself, volatility shouldn’t be feared. Long-term investors want to be buying shares at the cheapest levels possible and market pullbacks tend to provide great buying opportunities.
Recently, I’ve been thinking about the stocks I want to buy in the next market crash. With that in mind, here’s a look at two shares high up on my ‘buy list’.
The UK’s best fund managers love this stock
One stock I’d love to own is Intuit (NASDAQ: INTU). It’s a leading provider of accounting and financial software (QuickBooks and TurboTax are two of its main products). This stock is owned by a number of top fund managers including Terry Smith and Nick Train – two of the UK’s best stock pickers.
There’s a lot to like about Intuit, in my view. For starters, sales are ‘sticky.’ Once customers sign up to an accounting solution such as QuickBooks, they are unlikely to switch to a competitor as a switch would be time consuming and costly.
Secondly, Intuit has a great growth track record. Over the last five financial years, revenue has climbed from $4.2bn to $7.7bn. For the year ending 31 July, analysts expect revenue of $9.4bn.
Third, Intuit is a very profitable company. Over the last three years, return on capital employed (ROCE) has averaged 30%. Intuit currently trades at 47 times next year’s forecast earnings. That valuation looks a bit high to me. To my mind, the stock is priced for perfection. If growth stalls, the stock could underperform.
I’d prefer to buy the stock at a lower price. So, I’m hoping I can pick it up at a lower valuation in the next market crash.
A stock for the digital revolution
Another stock I’m hoping to buy in the next crash is Adobe (NASDAQ: ADBE). It’s a leading provider of creative software (Photoshop, Premiere Pro, etc). It also offers marketing and data analytics software.
The reason I’m bullish on Adobe is that the digital content market is growing rapidly. Just look at YouTube. Today, over 500 hours of content are uploaded to the platform every single minute (up from 35 hours in 2010).
Adobe is benefitting from the growth in content because it offers best-in-class creative software. Its video editing software, for example, is regularly ranked as the best software for creating YouTube videos.
The high demand for Adobe products is reflected in the company’s recent results. In the last quarter (ended 4 June), revenue was up 23%, while operating income was up 38%.
Annoyingly, I was very close to buying Adobe shares back in May when they were trading at around $475. I’m kicking myself for not buying because they have since shot up to $600.
At that price, the stock has a forward-looking P/E ratio of around 50. That’s not an outrageous valuation for a software stock but it doesn’t leave a huge margin of safety. If future growth is disappointing, the stock could take a hit.
So, I’m going to be patient here. Hopefully, I can buy the stock at a more attractive valuation in the next market crash.