2 stocks that I will buy when the market collapses again

The surge in the market last month brought the Dow Jones Industrial Average reached 30,000 for the first time in its history. But underneath all this uptrend, there were fears that a market correction could be imminent, especially as the real economy is still volatile. More than 6 million people in the United States are on unemployment benefits, up from less than 2 million at the same time last year, and many of those lost jobs will not return even after the coronavirus pandemic.

The mismatch between what is happening in the markets and the true state of the economy could end up being resolved by a Wall Street crash, especially given the current price of some stocks. And if that happens, there are two growth stocks that I will be looking to buy: GrowGeneration (NASDAQ: GRWG) and Adobe (NASDAQ: ADBE).

Image source: Getty Images.

1. GrowGeneration

Through the use of hydroponic systems, cannabis growers can efficiently grow their crops without the need for soil and in less space than would be required for a greenhouse or garden. This efficiency is a key factor that has driven both small and large growers to favor these systems, and it explains why GrowGeneration’s business has boomed this year. In the first nine months of 2020, the company posted sales of $ 131.4 million – well over double the $ 54.3 million it reported during the same period in 2019.

What makes GrowGeneration an even more attractive buy now is that in November voters in four other states passed initiatives to legalize recreational marijuana – Arizona, Montana, New Jersey, and South Dakota. In Mississippi, residents voted to legalize medical marijuana. These changes will only increase the demand for GrowGeneration’s products. When the company released its third quarter results on November 11, it raised its forecast. Management now expects its 2021 revenues to be between $ 280 million and $ 300 million. That would be an improvement of more than 50% from sales of $ 185 million to $ 190 million expected this year.

The only reason I’m not investing in GrowGeneration today is because the stock is expensive. It is trading at a futures price / earnings (P / E) multiple of around 195. That’s up from a futures P / E of 19 at the end of last year. And its price / sales (P / S) ratio of 8.8 is expensive. as well. The top 100 NASDAQ stocks have an average P / S multiple below 5 and an average expected P / E ratio below 35.

GrowGeneration may be an attractive growth stock, but given that it is trading near all-time highs and the market is expensive, it is an investment to put on your watch list for consideration after a possible downsizing. staff, but not necessarily a purchase at this time. Since the start of the year, the stock has risen by an incredible 703%, crushing the S&P 500 and its gains of 13%.

2. Adobe

Tech giant Adobe is older and more established than GrowGeneration, but that doesn’t mean it has stopped growing. Rather than relying on one-off large purchases of its software products as in the past, Adobe now allows consumers to easily access its popular programs through various subscription options. Photoshop, for example, costs $ 20.99 per month, and you can get all of Adobe’s Creative Cloud apps for $ 52.99 per month. These Software as a Service (SaaS) options can be more attractive and cost effective to users who otherwise might not have been able to justify the cost of purchasing the programs. And for the business, it creates a steady stream of income.

Adobe continued to do well this year amid the pandemic. Sales in the first three quarters totaled $ 9.4 billion, an increase of 15% over the period a year earlier. It wasn’t as high a growth rate as Adobe has seen in the past – in each of the past two fiscal years, its revenue has grown by over 23%.

But the good news is that his income is also much more stable and predictable than before. At $ 8.7 billion, recurring revenue this year accounted for 92% of total sales. In fiscal year 2017, this percentage was just over 84%, and the share has continued to increase. The company is also a safe bet for posting solid earnings. It has recorded a profit margin of over 25% in each of the last five quarters.

Adobe’s digital products are well suited to our screen-centric world, and professionals can use them whether they are physically in the office or at home. It has been one of the best homemaker titles in 2020, up more than 40% since the start of the year. It might be a bit cheaper than GrowGeneration in terms of its front P / E ratio – 42 – but it’s still higher than the average for major NASDAQ stocks. Its P / S multiple is around 18, which only serves to confirm that investors are now paying a steep premium for the stock.

There is no doubt that Adobe will continue to grow its sales in the long run, and if you already have it, you can think of it as a great investment that you can keep forever. However, this is another stock that is just a little too expensive to add to a portfolio right now. A falling market, however, could push its share price back to more reasonable levels.