Stock Market Adjustment: Pondering Over These Two Secure Investments Could Secure Your Financial Future
Hey there! The Nasdaq has plunged into a correction. When the stock market tumbles by 10% to 20% from its highs, it's called a correction (20% triggers a bear market officially). As we speak, after hours on March 11, the Nasdaq-100 index (QQQ 1.13%) is down 12.6% from its peaks, prompting an official stock market correction.
Don't let a collapsing market send shivers down your spine. If you're aiming to accumulate high-quality stocks at a competitive price, market corrections are the opportune moment. Savvy investors relish market corrections. Right now, I spot two compelling bargains with blue chip stocks that have dropped more than 20% from their peaks: Alphabet (GOOG 1.82%) and American Express (AXP 2.10%).
Can these two stocks set you up for life?
American Express Leads the Premium Spending Game
American Express is a major player in the worldwide credit card market and runs the third-busiest payments network in the United States. Its vertical integration advantage sets it apart from the competition in the credit card sector.
American Express boasts an impressive assortment of service offerings in the travel, entertainment, and food industries, catering primarily to a premium clientele based in the United States. Its revenue streams include card swipe fees, credit card loan balances, and annual fees charged for using its cards. Wall Street is worried that these revenue streams may suffer if we face a consumer spending slump. For instance, American Express’s significant partner, Delta Airlines, has slashed its Q1 revenue growth forecast from 7-9% down to 3-4% due to a recent decline in consumer confidence.
While this gloomy headline may instill fears about American Express, delving deeper can alleviate concerns. According to Delta Airlines, its premium, international, and loyalty revenue are holding steady compared to earlier expectations. This reveals the resilience of American Express's premium clientele in the face of a typical consumer. Now, you can snap up the stock at an attractive price-to-earnings ratio (P/E) of 18, after a 20% drop from its highs.
Even if a recession materializes and American Express temporarily experiences a dip in earnings per share (EPS), it will present a promising opportunity to acquire this time-tested brand. American Express has been a fixture in the United States for nearly two centuries and has weathered numerous geopolitical and economic crises throughout its tenure. It will weather whatever economic storms emerge this decade and prosper, generating wealth for shareholders along the way.
AXP PE Ratio data by YCharts.
Alphabet: Master of AI Faces Overhyped Competition
Like American Express, Alphabet is a top-notch business experiencing stock market turbulence due to concerns about its future earnings potential. However, unlike American Express, the investment community is fixated on a competitive threat instead of economic repercussions on the business. The emphasis lately has been on artificial intelligence (AI) and its potential threats to Alphabet's business model.
The proprietor of Google, YouTube, and Google Cloud has undeniably led AI innovation, but it is currently under threat from OpenAI and other generative AI start-ups. The fear is that people will switch from Google Search to more chat-based informational tools like ChatGPT. Decreased usage of Google Search means fewer advertisements clicked on by users, which translates to less revenue for Alphabet. Google Search and affiliated services still generate 50% of Alphabet's consolidated revenue.
To date, those slowdown worries are not aligning with Alphabet's financial reality. Google Search revenue skyrocketed from $48 billion in Q4 of 2023 to $54 billion in Q4 of 2024. As Google infuses more and more AI tools into Google Search in a bid to compete with ChatGPT, it is actually observing an increase in search queries—the opposite of what Wall Street anticipates.
Let's not forget the rapid growth at Google Cloud and YouTube, either. Google Cloud hit an annual revenue run rate of $48 billion in its last quarter and is expanding at a dizzying 30% year-over-year rate. Combining advertising and subscriptions, YouTube is now generating over $50 billion in annual revenue. Combined, these segments can help balance out any revenue shortfalls in Google Search that may stem from AI competition, if they even occur.
With a P/E of 20 and revenue expanding over 10% annually, Alphabet stock represents an irresistible buy-and-hold investment during this stock market correction.
- Despite the ongoing downturns in the stock market, including a recent correction in the Nasdaq-100 index, this period offers incentives for investing in high-quality stocks at competitive prices.
- Two such blue chip stocks that have dropped more than 20% from their peaks and present compelling bargains are Alphabet (GOOG) and American Express (AXP).
- American Express, a major player in the worldwide credit card market, may face some challenges in the face of a potential consumer spending slump, but its premium clientele and diversified revenue streams continue to show resilience.
- With an attractive price-to-earnings ratio (P/E) of 18, American Express provides an opportunity to acquire this time-tested brand, even if temporary dips in earnings per share (EPS) occur during economic downturns.