Nasdaq Market Sell-off: Should You Buy Stocks Right Now?

On Nov. 15, 2021, the Nasdaq Composite Index of stocks hit an all-time high of 16,057 — and it’s been all downhill from there.

Since hitting its peak, in fact, the Nasdaq has sold off hard, falling 34% through Thursday’s close. And since it only takes a 20% decline from peak to trough to meet the definition of a bear market, well, we’re definitely in a bear market now. There’s no question about that.

Instead, the questions a lot of investors are asking are how close we are to the end of the bear market and is it safe to start buying stocks now?

^IXIC data by YCharts.

What history says

Those are excellent questions. (But they’re not necessarily the right questions to ask — more on that in a moment).

According to research by The Washington Post, the U.S. economy has survived seven separate bear markets in the past 40 years. Stock market investors suffered losses of anywhere from 27% to 52% from peak to trough during these downturns, and the average loss was 35%. Given that the Nasdaq is down 34% already today, therefore, this suggests we may very well be near the bottom of the current bear market.

Or we may not be. History may rhyme, but there’s no guarantee it will repeat itself.

It’s also worth pointing out that, according to the Post‘s research, the average bear market since World War II has lasted 23 months from peak to trough and back to peak — but by that yardstick, our current bear is a mere cub, just seven months young.

Again, whether or not now is the time to buy depends largely on how you look at the numbers. According to research examining recessions dating all the way back to the Great Depression, it seems it only takes about 10 months, on average, for a stock market to fall from peak to trough during a recession. (The other 14 months are spent regaining the initial peak).

No matter how long it takes to regain the initial peak, though, once you’ve hit the trough and started climbing back higher, that’s exactly the right time to buy! And given that we’re seven months into the current bear market, we may be approaching this point.

A better question

So should you buy stocks right now? Judging from history, the answer certainly seems to be leaning toward “yes.” And yet, I do wonder whether this is perhaps the wrong question to ask.

A better question might be: Even if we don’t know exactly how long the bear market will last, we certainly know that the stock market has already fallen a lot, and a lot of stocks have gotten cheaper. So are there any specific stocks that are already cheap enough to buy, no matter how long the bear market lasts?

And the answer to that one is a much clearer “yes.”

Judging just from my own personal stock shopping list alone, I’ve already spotted a good dozen or more stocks that are cheap enough to make me sit up and take notice — and begin cautiously buying as the market continues to fall. These include:

Growth stocks trading at deep discounts to intrinsic value, such as beaten-up social media pick Pinterest (NYSE: PINS), which sells for a mere 17 times trailing free cash flow (FCF), but boasts a 54% projected long-term earnings growth rate, according to analyst forecasts.
Dominant plays on a revival in travel as Summer 2022 arrives. Booking Holdings (NASDAQ: BKNG) fits this bill with a slower projected growth rate of 20%, according to S&P Global Market Intelligence data, but a valuation just as cheap as Pinterest’s at 17b times FCF.
Even more gigantic companies that aren’t quite as cheap as I’d like but are getting there. Mastercard (NYSE: MA) falls into this category. At 32 times FCF, it’s a long way from “cheap,” but with 25% long-term growth projected for it and the potential to see revenue run higher as consumers spend heavily on gasoline this summer — and indeed, for the foreseeable future — I think it’s a great stock to watch.

And for investors, that’s really the good news. You don’t have to wait for the bear market to end. Whether or not the Nasdaq sell-off has run its course, these three stocks — probably many more besides — are already cheap enough to buy right now.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Booking Holdings, Mastercard, and Pinterest. The Motley Fool has a disclosure policy.

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