Every investor has their own way of dealing with a market crash. Some believe that they have a stable enough portfolio that can weather the market crash. Others liquidate significant portions of their investment portfolios to mitigate potential losses. But the investors who actually benefit from a market crash are the ones that buy great companies when they are available at rock-bottom prices during a market crash.
It might not be the most conservative approach, but fortunes are made in market crashes. If you’ve identified some great picks that are currently too overpriced to buy but at the right value, they might be exactly what you need to set your portfolio for robust long-term growth. A market crash gives you the chance to buy good companies at the right value or even below that mark.
A software company
The 2020 crash was the easiest for the tech sector, as it became the first to recover. Many tech stocks grew at an accelerated pace after the crash, forerunning the broad market recovery. But even a stock like Kinaxis (TSX:KXS) dipped over 20% in March before recovering by April and then started growing at an unusual pace. The stock is on its way to a long-winded normalization, but it would be a long time before it’s anywhere near fair value.
That’s why the 2021 market crash might be the perfect time to buy this powerful growth stock. It has a five-year CAGR of 31.3% and a $30,000 investment growing at this pace can turn into a million dollars in about 13 years. Another reason why Kinaxis’s long-term growth prospects seem promising is that it has the potential to become a key player in the e-commerce marketplace.
A cargo company
Cargojet (TSX:CJT) has been overvalued for a very long time, and it’s well justified. Even before the market crashed, Cargojet had a fantastic growth history, but now it’s off the charts. Between its lowest point in March and its highest in November, the stock grew about 225%. This has beefed up the numbers for its already impressive historical growth, and the 10-year CAGR is now 43.7%.
If the company can maintain that growth pace for just one more decade, you can grow a one-time $30,000 investment into a million. Cargojet is the major player in the overnight shipping business and currently has minimal competition. But with the situation of airlines, other companies, especially Air Canada, might try to enter the cargo market and give Cargojet some real competition.
It might not be easy to time the market perfectly and identify the absolute lowest point to buy. Also, a 2021 market crash might not be as sharp as the 2020 crash was, and the market might slip down to its lowest point gradually. These are all the things that you need to take into account when you time your purchases.
Speaking of 2021 market crash...
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends CARGOJET INC. The Motley Fool recommends KINAXIS INC.