The stock market has enjoyed a good run to start the year. The S&P 500 and Nasdaq Composite are both up by roughly 10% year-to-date. However, these indices are likely to face resistance soon.
Stocks don’t continue to march up higher. They will face resistance and go through corrections. A correction occurs when a stock, index, or fund loses at least 10% of its value from its peak. Assets only exit their corrections after claiming fresh all-time highs.
Corrections and market downturns can feel intimidating when they happen, especially if this is one of your first corrections. However, these corrections present long-term opportunities for investors. People fretted in 2016, 2017, 2018, and in other years that exhibited slight dips.
Corrections are normal and healthy for the stock market in the long run, but these corrections create discounts. Make sure you look into these must-buy stocks whenever the market falters.
Alphabet (GOOG,GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has outperformed the stock market for many years thanks to its highly profitable advertising business. Google and YouTube dominate the industry and continue to grow. Google Advertising revenue jumped from $59.0 billion in Q4 2022 to $65.5 billion in Q4 2023. That’s an 11% year-over-year increase.
Google Cloud was another big winner, generating $9.2 billion in revenue during the quarter. That’s a 25.7% year-over-year growth rate. Alphabet as a whole reported 13% year-over-year revenue growth and 52% year-over-year net income growth. The company’s profit margins reached 24% which is a 33.8% year-over-year increase.
Analysts are feeling optimistic about the stock. Alphabet has a “Strong Buy” rating and a projected 8% upside. The highest price target of $180 per share suggests that the stock can reward shareholders with an 18% gain at current levels.
Duolingo (DUOL)
Duolingo (NASDAQ:DUOL) checks many of the boxes for growth investors. The company has high revenue growth, users rushing to create accounts and engage with the app, and a switch to profitability. Net income reached $12.1 million in Q4 2023 compared to a net loss of $13.9 million in the same period last year.
The educational tech company helps millions of people learn new languages. It’s also expanded into other subjects like math and music. The app had 26.9 million daily active users in Q4 2023 which is 65% higher than the same quarter last year.
Everything’s going smoothly for the company, but investors will have to swallow a lofty valuation. Duolingo shares currently trade at a 128-forward P/E ratio. The corporation is poised to expand its profit margins and tap into growing markets. That’s why analysts are still projecting a 15% upside for the stock. Some analysts set even more aggressive price targets. A market pullback will make Duolingo’s valuation more attractive. The stock is worth monitoring.
Intuit (INTU)
Intuit (NASDAQ:INTU) is a fintech company that offers software products for consumers and business owners. The firm makes it easier for people to manage their finances, pay taxes, and access additional capital.
Shares are up by 144% over the past five years and offer a 0.57% dividend yield. Intuit has maintained a compounded annual growth rate of 16.65% for its cash distributions over the past decade. The company only has a 34.62% dividend payout ratio.
Intuit delivered 11% year-over-year revenue growth in the second quarter of fiscal 2024. Its large “Small Business and Self-Employed Group” segment grew by 18% year-over-year. Full-year guidance suggests revenue will grow by 11% to 12% year-over-year. GAAP diluted earnings per share are expected to increase by 11% to 15% year-over-year.
Rising profit margins and a solid moat are strengthening the company’s long-term prospects. Analysts are bullish on the stock and rated it as a “Strong Buy.” The average price target suggests an 11% upside.
ServiceNow (NOW)
ServiceNow (NYSE:NOW) generates recurring revenue from software that customers have come to love. The Now Platform has a 99% renewal rate and more than 8,100 enterprise customers. Approximately 85% of Fortune 500 corporations use ServiceNow to operate more efficiently and create workflows.
The stock has comfortably outperformed the stock market with a 221% gain over the past five years. The momentum has continued with a 14% year-to-date gain and a 66% gain over the past year. Analysts believe the stock can generate more gains for investors and are projecting a 9% upside from the current price.
ServiceNow has strong financials that justify the optimism. The firm reported 26% year-over-year revenue growth and 97% year-over-year net income growth. Profit margins are soaring and reached 12.1% in Q4 2023. The company now has roughly 1,900 customers with annual contract values that exceed $1 million. The company added 168 new customers to this segment which is a 33% year-over-year increase.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) has grabbed investors’ attention thanks to its 219% run over the past year. Shares are also up by 83% year-to-date. The chipmaker has established itself as the leader of the artificial intelligence industry, and its financial results reflect its position.
Nvidia reported 265% year-over-year revenue growth and 769% year-over-year net income growth in the fourth quarter of fiscal 2024. Expanding profit margins have made the stock easier to justify, but a pullback would make the stock look more desirable.
Investors shouldn’t expect these growth rates to last forever. Revenue reached $22.1 billion in the quarter which is a 22% improvement from Q3 FY24. Sequential revenue growth is still impressive but is slowing down. Full-year revenue increased by 126% year-over-year.
While year-over-year growth rates are set to decelerate after Q1 FY25 thanks to challenging benchmarks set by last year’s hypergrowth, the stock still offers growth opportunities. Nvidia shares currently trade at a 36.5 forward P/E ratio and a 1.19 PEG ratio.
Caterpillar (CAT)
Caterpillar (NYSE:CAT) has been on a roll with a 169% gain over the past five years. The construction equipment company has also gained 30% year-to-date after another quarter of rising profit margins. The company reported 3% year-over-year revenue growth and 84% year-over-year net income growth in Q4 2023. Those results helped the company turn in a 15.7% net profit margin.
The stock has an 18 P/E ratio. The valuation hasn’t been this high since the end of 2021. Caterpillar has delivered steady EPS gains over the past few years. Continued growth can make the P/E ratio become more reasonable, but it’s still a better value stock than many contenders.
Caterpillar also offers a 1.37% yield and an impressive dividend growth rate. The company’s dividend has maintained an annualized 8.20% growth rate for the past decade. Caterpillar only has a 24.80% dividend payout ratio which leaves the door open for more dividend hikes.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is one of the best stocks to buy on a pullback. The corporation has consistently outperformed the stock market and is up by 252% over the past five years. The $3 trillion tech conglomerate is expanding its market share in multiple industries like cloud computing, artificial intelligence, software, and cybersecurity.
Copilot can open up new opportunities for the company. The recent launch of Copilot for Security offers an additional revenue stream and further establishes Microsoft as a cybersecurity leader. While the company has many exciting avenues for future growth, cloud computing is the company’s most important segment.
Microsoft Cloud grew by 24% year-over-year in the second quarter of fiscal 2024 and came to $33.7 billion. Revenue for Microsoft as a whole increased by 18% year-over-year to reach $62.0 billion. Net income increased by 33% year-over-year. Microsoft’s ability to expand profit margins and tap into many industries makes it a compelling long-term stock. A short-term drop due to general weaknesses in the stock market can result in a good buying opportunity.
On this date of publication, Marc Guberti held long positions in GOOG, NOW, NVDA, and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.