The last few weeks haven’t been fun for investors who own shares in the US stock market. The S&P 500 and Nasdaq Composite have both entered correction territory, with these leading American indices falling by over 10% since mid-February.
And for individual stock pickers, the recent volatility has been even worse, with favourites like Tesla, Palantir, and ServiceNow (NYSE:NOW) losing around a third of their market-caps.
The growing uncertainty surrounding trade wars and geopolitical conflicts has investors on edge about the US economy. Specifically, fears are mounting that America could be heading into a recession. And since that would make life far harder for businesses to grow, it’s not exactly a surprise that growth stocks are being sold off in a panic.
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However, as we’ve seen multiple times these past five years, crashes and corrections can be exceptionally lucrative. So let’s explore how investors can leverage today’s panic to try and get richer.
A record of recovery
Let’s take a quick glance at ServiceNow. In the 2020 Covid-19 stock market crash, the tech giant saw around 30% of its value wiped out in the space of just over a month. Then, skip ahead to the massive correction investors endured in 2022, the share price tumbled yet again, this time by almost 50%.
However, investors who sought to profit from the chaos and chose to buy at these lower prices are now sitting on pretty enormous returns, even after the recent sell-off. Buying during Covid would have earned a 238% return while snapping up shares at the end of 2022 led to a 120% gain. So with the stock now in freefall once again, is this a screaming buying opportunity?
Understanding the risk and reward
Blindly snapping up a growth stock that’s falling isn’t a winning strategy. In fact, there are plenty of shares that haven’t enjoyed the same rebound ServiceNow has. Instead, investors need to dig deeper to understand the long-term potential of a business and the risks it faces in trying to achieve its goals.
Since we’re already talking about it, let’s use ServiceNow as an example. The company’s core technology is about helping businesses become more efficient and productive through software automation. And a big part of its future growth story is the integration of new AI toolkits.
So far, the results from customers have been pretty encouraging. Now that management’s targeting the customer relationship management (CRM) market, ServiceNow’s preparing to take on industry titans like Salesforce and Workday. Needless to say, if it’s successful, then the group’s current $173bn market-cap could be just the tip of the iceberg.
Of course, success isn’t guaranteed. And if investors are expecting ServiceNow’s competitors to just sit idle while it steals market share, I think they’re going to be sorely disappointed. Even without this competitive threat, as more critical and sensitive customer information flows through its platform, ServiceNow’s likely to become an increasingly attractive target for cybercriminals. A failure to fend off cyber attacks could severely disrupt the firm’s progress.
Personally, with the valuation down so significantly, ServiceNow’s worthy of a closer look. But it’s not the only potential opportunity in the US stock market right now.
