The stock market is on sale, but all sales are not created equal. Last week, the S&P 500 fell 20 percent below its peak and entered bear market territory since the pandemic. The Dow Jones Industrial Average and Nasdaq recorded their eighth and seventh straight declines. The market bounced back this week, but numerous analysts believe that speculative investors buy the dip and sell the rips. 

Investors who want to take advantage of the stock market clearance blowout sale need to be tactical because the current market conditions expose unprofitable businesses with flawed business models.

The shares of Meta Platforms, Facebook’s parent company, Apple, Peloton Interactive, and many more companies are now trading at their 52-week lows. 

Some companies will inevitably bounce back; however, some might never trade above their current level.

In boom times, all companies seem to have winning business models, and everybody seems to be getting more prosperous than the fundamentalists or value investors.   

Warren Buffet said, “it’s only when the tide goes out that you learn who has been swimming naked” Investors have to ask themselves a serious question: have they been “pelotoning,” “ubering,” or “Facebooking” naked? The answer to this question above is in each of those organizations’ financial statements.

The Intelligent Investor

The intelligent investor can score winning trades if she goes back to fundamentals where operating income, free cash flow, and balance sheet are the basis of decision-making, not electrified founders and startups with business models filled with buzzwords such as blockchain, web3, and others.

The U.S. stock market has been in a historically long run. It has been going on since March 2009. The equity bull market halted during the pandemic, but it bounced back a few weeks later.

The historic run of the equity market and the emergence of a new crop of financial assets, such as cryptos, non-fungible tokens, and more, have created a level of complacency in both value and growth investors. 

Investors allow money-losing startups to use egregious creative accounting schemes to mask their flawed- business models. 

Instead of earnings before interest, taxes, depreciation, and amortization (EBITDA), WeWork told its investors that “community-adjusted earnings before interest, taxes, depreciation, and amortization” was a better metric to use to evaluate the commercial real estate company. 

The whole U.S. equity market is on sale right now, meaning that there are excellent businesses with great balance sheets and management that investors can buy.

To weed out the bad companies is quite simple. Investors have to go back to the basics to pull the desired company financial statements and comb through them.