There are obviously many wonderful businesses listed on the stock market. Unfortunately though, a large number of them are currently trading at valuations I don’t consider wonderful. In fact, I’d say they look very expensive, especially in the US.
However, stock markets have a tendency to quickly correct high valuations. The problem, of course, is that nobody knows when a stock market crash will happen.
So I keep a list of those shares I’d like to own if there’s a crash in the near future. Here are two I already hold that are at the top of my wishlist.
Ferrari
The name Ferrari (NYSE: RACE) is synonymous with ultra-high quality and high prices too. Unfortunately, after zooming 48.5% higher this year, the stock is also luxuriously expensive.
It’s trading on a price-to-earnings (P/E) ratio of 54, which is many multiples above the wider car sector and higher than the overall US market.
That said, Ferrari isn’t a ‘standard’ car company. The Italian brand is one of the most powerful luxury names in the world. It’s able to sell out its high-end sports vehicles before it even finishes building them.
Its wealthy customers and exclusive brand built on limiting ownership of the cars affords the company extreme pricing power. Indeed, its operating margin now rests at around 24%, which is the highest in the industry.
Ferrari’s first fully-electric vehicle (EV) is expected in 2025 and the firm plans to generate 40% of its sales from EVs by 2030. While this adds an element of uncertainty, I’m confident the firm will successfully navigate the transition and maintain its competitive edge.
Meanwhile, its long-term opportunities in emerging economies like China and the Middle East appear significant. This is one of the first stocks I’d add to if a market crash sent the share price lower.
Intuitive Surgical
The second stock I’d buy in a heartbeat during a stock market crash is Intuitive Surgical (NASDAQ: ISRG). The US medical technology giant now has more than 7,300 of its da Vinci robotic surgical systems installed in hospitals and healthcare centres worldwide.
These high-tech machines assist surgeons in performing complex minimally invasive procedures with higher precision and improved motion. They cost between $0.5m and $2.5m and require medical practitioners to be extensively trained to use them.
This makes the switching costs extremely high, essentially locking in customers. Likewise, it locks in Intuitive’s profits, which are largely derived from the sale of additional instruments and accessories (or consumables) needed to run the systems. Indeed, around 79% of its revenue last year was recurring.
While the company is dominant in its sector, with around an 80% market share, it does have competition. There are rivals such as Medtronic and UK-based CMR Surgical. So there’s always a chance that one of these competitors (or another) takes market share at some point with superior technology and products.
However, Intuitive continues to invest relentlessly in research and development (R&D) to stay one step ahead of the pack. In 2021, for example, the firm invested $671m on R&D. In 2022, it spent $879m, representing a massive 31% increase.
Unfortunately, with a P/E of 90, the stock’s valuation reflects the likelihood of ongoing dominance. So I’d rather wait for a correction before adding to my position in this robotics pioneer.
