A rising market brings risks, while a falling market brings opportunities. Whether it's a panic selling at the end of a bear market or a sharp pullback amid a bull market, every stock market crash could signal an entry opportunity.

As Warren Buffett said, "Be fearful when others are greedy. Be greedy when others are fearful." When panic prevails and stock prices fall precipitously, it is also the time for savvy investors to buy in, hoping to benefit from the rebound via lapping up quality stocks.

So what kinds of stocks are considered quality? How do you pick them out? Let's take a look.

Generally speaking, good stocks include but are not limited to three types.

• Growth companies in fast-growing industries

• Cash cows in steady industries

• Highly prosperous companies in cyclical industries

Let's talk about them respectively.

1. Growth companies in fast-growing industries

The first thing to look at when picking stocks is the industry. Generally, companies are growing faster in a growing industry with an overall upward trend. Conversely, in declining industries, most of the companies are also going downhill, making it hard to continue the growth.

Therefore, we first need to find high-growth industries with a relatively low market penetration rate, broad room for development, and a fast growth rate. For example, the smartphone industry chain was fast-growing more than a decade ago, and now there are many high-growth sub-sectors in the new energy industry chain.

Top-quality stocks in high-growth industries are generally the leading companies. These companies grow faster in revenue than the industry and have a considerable market share and great earnings prospects even if they are not necessarily profitable now. For example, in the new energy vehicle industry and the power battery industry, there are companies that have grown from small companies to global giants, such as Tesla and the lithium battery leader Contemporary Amperex Technology.

2. Cash cows in steady industries

Most fast-growing industries enter a mature stage when the penetration rate rises to a high level, for example, 70% or even higher, and the industry turns to a stable growth stage where the industry growth rate may stay roughly the same as the GDP growth rate.

There are good companies in such industries as well. Referred to as cash cows, these companies usually have relatively small capital expenditures, steady cash flow, high-profit margins, and high return on equity.

Despite the average growth rates of these companies, on the one hand, they have a very high margin of safety with stable profits and cash inflows every year. On the other hand, they have enough cash reserves and are more likely to develop new businesses and form new growth points.

For example, Microsoft is experiencing slower growth as the computer industry enters maturity. Nonetheless, it still has enough profit and cash flow to tap into the cloud service business to restart growth. Take Apple as another example. The cell phone industry is also entering maturity, and Apple has limited growth potential. However, as a cash cow, it still retains the possibility of entering the new energy car and VR industry.

China's Kweichow Moutai could be another case in point. Despite the difficulty of having significant growth, its deep economic moat, high-profit margins, and cash flow still make it a good company in the eyes of investors.

3. Highly prosperous companies in cyclical industries

Cyclical stocks are usually not good companies in the traditional sense because their earnings are not stable enough, and they're not easy to see consecutive years of share price increases. However, in a cycle of rising industry boom, with increased product demand and sustained price increases, some high-quality cyclical stocks are many investors' preferences.

Resource-based companies generally dominate cyclical stocks, such as oil, natural gas, coal, and steel. Take their performance in recent years to illustrate. These industries were hit hard at the beginning of the Covid-19 pandemic. For example, crude oil prices once collapsed into negative territory, but then climbed fairly high, driving up the prices of other resources. Cyclical stocks also ushered in a high boom cycle.

Leading companies in these industries are usually characterized by their massive scale and advanced production technology. Thus, they enjoy a great cost advantage that enables them to make no or fewer losses during an industry downturn, while making the most profits during an industry upturn. Investors also pay more attention to this kind of company. However, when investing in cyclical stocks, it is vital to keep an eye on the inflection point of the cycle so as to control the risk.

These are some of the characteristics of the three types of cyclical stocks mentioned above. You can screen more quality stocks based on such features and add them to your watchlists. Companies with good fundamentals and fair valuation also see significant pullbacks amid panic selling, which could also be a good time for investors to buy the dip of these quality stocks.