The US stock market crash is here! What am I doing?
Over the past year-and-a-half, analysts have consistently stated that US tech stocks have been in a bubble. But instead of bursting, the prices of these stocks continued to rise. Some notable examples include Tesla, which reached a $1trn valuation, and Apple, which soared to a $3trn market cap. But recently, this bubble has finally burst. Indeed, the Nasdaq index has fallen 17% from its recent highs, and the S&P 500 has fallen around 10%, reaching correction territory. While this is not as severe as the stock market crash in 2020, they’re still very large falls. Yesterday was a particularly bad day for stocks, due to a mixture of geopolitical tensions and more worries about inflation. But a stock market crash can often be a great time to buy stocks. So, what am I doing with some of the big fallers?
Growth stocks crash
The majority of large fallers have been growth stocks. This is due to worries over inflation, which means that the Fed will introduce several interest rate hikes throughout 2022. The Bank of England has already raised interest rates. This will make it more expensive to borrow, which is particularly detrimental for growth stocks. However, I believe that the stock market crash has left some companies far too cheap, as this issue now seems to be priced in.
One example is SoFi Technologies (NASDAQ: SOFI). SoFi is a fintech that went public via a special purpose acquisition company (SPAC) last year. But despite the share price falling over 50% from its highs of $26, the company’s performance continues to impress me. For instance, in its Q3 trading update, it announced that it had around 3m members, which is a 96% year-on-year rise. Recently, it also received a bank charter, which will allow it to directly lend money to customers. I feel this will entice more customers to use SoFi, while also boosting profitability. Therefore, despite the issues that inflation will cause for the fintech, I think it is a great example of a broken stock but an excellent company. I’m using this mini stock market crash as an opportunity to buy.
The stock market crash doesn’t mean buy everything
Although the stock market crash has led to several bargains, I also believe that some stocks have been rightfully discounted. This means that it’s important to be discerning when picking stocks, especially during such volatility.
For example, Netflix (NASDAQ: NFLX) stock has fallen around 30% over the past couple of days. This has left the stock trading at a price-to-earnings ratio of around 33 which, in comparison to many other growth stocks, does seem relatively cheap. As the shares are now at cheaper valuations than historically, this may allow the shares to recover, especially as some profit growth is still expected for the next financial year.
But I’m slightly worried about its future prospects. Indeed, in its recent Q4 update, there were major signs of slowing subscriber growth. Further, in Q1 next year, Netflix only expects around 2.5m net subscribers, well short of the 4m recruited in the same period last year. This slowing growth is due to the competition in the market, as well as the end of lockdowns around the world. As such, this slowing growth makes Netflix’s valuation hard to justify, and even despite the recent crash, it’s a stock I’m leaving on the sidelines.
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Stuart Blair owns shares in Apple and SoFI Technologies. The Fintech Zoom UK has recommended Apple and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Fintech Zoom we believe that considering a diverse range of insights makes us better investors.
Fintech Zoom UK 2022