Three Unyielding Expansion Stocks to Invest in During a Stock Market Downturn
Three Unyielding Expansion Stocks to Invest in During a Stock Market Downturn
It's no secret that major market indices are reaching new heights. Investors are feeling hopeful following the conclusion of the recent presidential election, along with positive news about the economy's health.
However, there's a chance of unexpected negative news causing a sudden and sharp market sell-off. It's essential to understand that such sell-offs are common in stock markets. Instead of being caught off guard, use these scenarios to buy high-growth stocks at reduced prices.
It's wise to focus on targeting companies with sound business models and strong competitive advantages to protect them from competition. Ideally, these businesses should be growing their revenue and profits, generating positive free cash flow, and having factors that ensure sustained growth in the future.
If a market crash occurs, consider purchasing these three stocks:
1. Oracle
Oracle (ORCL -1.10%) is a market leader in cloud infrastructure, providing services like Oracle Cloud. Additionally, they offer integrated application suites, hardware, and various business-related products and services, such as Oracle Database, a relational database management system.
The company has benefited from the rising demand for AI applications and cloud services, leading to growth in their top and bottom lines. Revenue increased from $42.4 billion in fiscal 2022 (until May 31) to $53 billion in fiscal 2024, with net income jumping by nearly 56% during the two-year period. Free cash flow also more than doubled, from $5 billion to $11.8 billion, over the same timeframe.
Oracle's strong financial performance has continued in the first quarter of fiscal 2025, with total revenue rising 7% year-over-year to $13.3 billion, operating income increasing by 21% year-over-year to $4 billion, and net income climbing to $2.9 billion, a 21% increase. The company also reported a positive free cash flow of $5.1 billion for the quarter.
Oracle's remaining performance obligations stood at $99 billion, an increase of 53% year-over-year, signaling more business for the company. A quarterly dividend of $0.40 was also announced, providing investors with a passive income stream alongside capital gains.
Oracle's cloud segment still has significant growth potential, with management estimating that Oracle Cloud applications' revenue opportunity exceeds $115 billion, predominantly from new opportunities that can be captured.
Multicloud agreements with Microsoft and Google will help the company expand its cloud data center segment, with 24 Oracle Cloud regions being built for Microsoft and 14 under construction for Google. Oracle recently signed an agreement with Amazon Web Services (AWS).
Oracle has also grown through strategic acquisitions, such as Next Technik, which provides field service management capabilities for NetSuite customers, and Newmetrix's intellectual property, including its AI-enabled construction-safety product suite.
2. Palo Alto Networks
Palo Alto Networks (PANW -1.77%) is a cybersecurity company that uses AI to detect threats and boost security effectiveness. The number of megabreaches has increased, and ransomware public extortion activity has surged by more than 50% since 2022. As more organizations transition to digital platforms and cloud services, a greater need for online security has emerged. Palo Alto Networks has capitalized on these trends, resulting in steady growth in revenue and net income over the years.
Total revenue began at $5.5 billion in fiscal 2022 (until July 31) and rose to $8 billion in fiscal 2024. Palo Alto Networks reported a net loss of $267 million in fiscal 2022, which has transformed into a net profit of $2.6 billion by fiscal 2024. Excluding a tax credit of $1.6 billion in fiscal 2024, profit before tax would have still been $988.3 million. Free cash flow also improved over the years, from $1.8 billion in fiscal 2022 to $3.1 billion in fiscal 2024.
Palo Alto Networks still has ample growth potential, with the cybersecurity market projected to grow at an annual compound growth rate of 7.9% to reach $271.9 billion by 2029.
The company's figures indicate that this opportunity is being realized, with next-generation security annual recurring revenue growing by 43% year over year to $4.2 billion. Remaining performance obligations increased by 20% year over year to $12.7 billion.
Management believes that larger incumbent organizations, such as themselves, will be more successful in utilizing AI compared to smaller start-ups. AI will play a vital role in 2025 and beyond, benefiting the company as enterprises adopt secure enterprise browsers to protect against malware and ransomware.
Palo Alto Networks aims to have around 90% of its revenue be recurring by fiscal 2030 and is confident of further growth in customer numbers and spending.
Arista Networks (ANET) witnessing a 5.14% surge, is a major player in supplying cloud and AI networking solutions for clients. Similar to Oracle and Palo Alto Networks, Arista Networks experienced consistent revenue escalations and net income enhancements over time, thanks to the escalating demand for their offerings.
Revenue soared from $2.9 billion in 2021 to an impressive $5.9 billion in 2023, while net income experienced a substantial leap of almost 105%, rising from $840 million to an astounding $2.1 billion across the same duration. The company's free cash flow profile also improved, moving from $951 million in 2021 to an impressive $2 billion by 2023.
The positive growth trajectory carried on into the first nine months of 2024, with revenue climbing 17.4% year-on-year to an impressive $5.1 billion. Operating income and net income increased by 32.6% and 39.2%, respectively, reaching $2.1 billion and $2 billion. The business also generated a notable free cash flow of $2.7 billion, representing an almost 80% surge year-on-year.
Arista Networks looks set to thrive with the launch of fresh offerings for its CloudVision platform, which facilitates a modern network operating model for customers. This network-as-a-service model covers data centers, campuses, and wide-area networks, streamlining operations for organizations and leading to substantial savings in operating expenses.
The company still holds considerable growth potential as the cloud networking market is expanding rapidly. Arista Networks' total addressable market was valued at $37 billion in 2023, with projections for this to expand to an impressive $60 billion by 2027.
Management has unveiled its plans for "Arista 2.0," which encompasses three critical pillars. These pillars include expanding investments in AI networking, targeting prospective markets such as edge-as-a-service, and providing software-as-a-service capabilities through the delivery of Zero Trust networks.
With a well-defined, long-term strategy and propellant factors in its favor, Arista Networks looks set to maintain its growth in revenues and profits for years to come.
After considering the market's volatility, it's crucial to allocate a portion of your investing funds towards companies with strong financial performance, such as Oracle and Palo Alto Networks. These companies, Oracle with a focus on cloud infrastructure and Palo Alto Networks in cybersecurity, have shown consistent growth in their revenues and profits, providing an attractive investment opportunity during financial downturns. By doing so, you can potentially leverage the benefits of 'finance' and 'investing' to protect your 'money' from market fluctuations.
Investing in Oracle or Palo Alto Networks also provides an opportunity to diversify your portfolio and potentially gain from their innovative technologies, such as Oracle Cloud and AI-driven cybersecurity solutions. These advancements are not only driving the growth of these companies but also shaping the future of various industries, promising sustained growth in the long term.