For long-term investors, market crashes provide opportunities to buy more of the great companies they own at a steep discount. Additionally, they allow investors to finally open a position in overvalued stocks after prolonged periods of sitting on the sidelines. Major indices such as the S&P500 have always rallied to new all-time highs after every single steep sell-off in U.S. history.
In the short term, however, there is no way to tell until after the fact if the ongoing market correction will lead to stocks simply rebounding and breaking to new all-time highs, or intensify into a full market rout as witnessed in March. In case of the latter, let's look at three of the best stocks to buy on the dip.
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1. Peloton Interactive
Peloton Interactive (PTON 2.06%) has become one of the leaders in the home fitness industry just one year after its IPO in Oct. 2019. The company's state-of-the-art exercise bikes feature live competitions with other Peloton users in the area and subscription-based coaching on its 22-inch HD touchscreen tablet. Each Peloton bike costs about $2,245, and the company is recently announcing that it would slash the price to $1,895. Although that may sound very expensive, people under the age of 35 account for 20% of the company's new sales, and is now its fastest growing constumer group.
That may sound luxurious, but Peloton's customer base never seems to stop growing. Over the past six years, the company increased its revenue by more than 100% and generated $1.8 billion in sales for its 2020 fiscal year. From the beginning of 2018 to now, the company's fitness subscriptions increased by 107% per year while the total number of workouts on its exercise bikes increased by 213% per year.
Peloton bikes have an outstanding 94 customer satisfaction rating, on a scale of -100 to 100. Although the stock seems expensive at 12 times price to sales (P/S), investors are getting a lot of growth momentum for what they pay. In the past year, Peloton shares are up over 215%, turning an investment of $10,000 last September to $31,660 in just 12 months.
2. 1Life Healthcare
1Life Healthcare (ONEM) is well positioned with its unique primary-care and telemedicine membership model. For a $199 annual fee and extra bills to your health insurance, costumers who sign up for the concierge health service are guaranteed to have their physicians show up on time for appointments.
Additionally, patients in need of care can see a doctor at a 1Life clinic or urgent care facility within 24 hours. There is also a 24/7 virtual-visit option for subscribers. That puts the company at a superb position to capitalize off the boom in telemedicine, which is projected to grow from $6.61 billion in 2019 to $17.14 billion by 2026.
During the second quarter of 2020, 1Life's membership count increased by 25% year over year to 475,000. Simultaneously, the company's revenue grew 18% year over year to $78 million. There are now 96 1Life medical offices nationwide servicing its members, as well as over 7,000 enterprise clients purchase 1Life's health plans on behalf of their employees.
1Life has $664.4 million in cash and investments, more than enough to sustain its current growth rate and offset $234.6 million in convertible debt liabilities. If investors are interested in a solid healthcare growth stock, 1Life is a great option. Since its IPO in January, the company's shares are up about 30%.
3. Jazz Pharmaceuticals
Jazz Pharmaceuticals (JAZZ 1.23%) is arguably one of the cheapest stocks in the pharmaceutical sector. Since its approval in 2002, its best-in-class sleep disorder drug Xyrem quickly reached blockbuster status, but its various patents will expire between 2019 to 2024. That puts close to $1.8 billion out of $2.3 billion worth of the company's revenue at risk of generic competition.
Luckily, the company is quickly diversifying. Since 2015, Jazz has received nine drug approvals in its neuroscience and oncology pipeline, with an additional five potential product launches within the next year. The company's oncology treatments are expected to generate $525 million in revenue for its fiscal year 2020.
Jazz is surprisingly cheap for a company that grew its earnings by 35% per year in the past nine years and generates more than $880 million in cash flow from operations. The stock has a valuation of just 3.6 times price to sales (P/S) and 14 times price to free cash flow. In the past year, Jazz stock has remained mostly unchanged, which provides an opportunity for value investors to pick up shares on the cheap.
