Nasdaq Bear Market: 3 Proven Winners You’ll Regret Not Buying on a Dip
Regardless of whether you’ve invested your money in the stock market decades ago or are a relative newcomer to investing in Wall Street, the start of the year has been challenging. Both are extensive Standard & Poor’s 500 And almost 126 years Dow Jones Industrial Average The retracement zone officially hit in March – they’ve lost at least 10% of their value since hitting all-time highs in early January.
It was even more difficult to focus on growing Nasdaq Composite (^ IXIC -2.55% )which has lost as much as 22% of its value since hitting an all-time high five months ago. This peak decline pushed the Nasdaq into a bear market for a brief period.
While there is no doubt that bear market dips can be scary, history also shows that they are the perfect time to put your money to work. After all, all the significant declines seen in the major indicators throughout history were eventually erased by the rally of the bull market. It is simply a matter of buying proven winners and letting your investment thesis work over time.
With the Nasdaq bear market putting a number of big companies up for sale, now appears to be the perfect time to strike. Here are three proven winners you’ll regret not buying on the dip.
The first proven winner who just begged to be bought by long-term investors during this ‘tech pile’ is the social media pioneer ID pads (FB -2.11% ). Meta is the company formerly known as Facebook.
Meta skeptics were concerned about the company’s exorbitant investments in the metaverse, which could take some time to pay off. The metaverse is the next iteration of the internet that will allow connected users the ability to interact with other people and their surroundings in virtual 3D worlds. Disappointing growth forecasts for 2022, along with lower profitability due to boosted reverse spending, nearly halved Meta’s share price.
But we’re not talking about your social media company trying to make its claim here. This is Meta, the company that controls four of the most popular social media sites on the planet: Facebook, Instagram, WhatsApp and Facebook Messenger. In the fourth quarter, Meta had 3.59 billion people visiting at least one of its owned assets each month. This represents more than half of the world’s adult population.
Even as concerns grow about a possible recession as the Federal Reserve raises interest rates to stem historically high inflation, Meta’s advertising-guided operating model is showing few signs of weakness. Last year, the company reported a 24% increase in ad pricing power. Merchants fully understand that they will not find wider access to their eyeballs through any other platform, which is what gives Meta incredible pricing power.
Another thing to keep in mind is that Meta Platforms have the capital and operating cash flow to invest aggressively in the metaverse, even if the return is years away. Meta finished 2021 with more than $33 billion in net cash, and generated nearly $58 billion in operating cash flow last year. There is plenty of wiggle room with this balance sheet to invest in what could become a multibillion dollar opportunity.
Over the past five years, the Meta has averaged a price-to-earnings ratio of 29. You can currently acquire shares for less than 14 times Wall Street’s forecast 2023 earnings.
The second proven winner that you’ll regret not buying on a swoon in the Nasdaq market is Storage Solutions Western Digital (WDC -1.55% ).
Western Digital’s biggest enemy is often itself and its peers. When storage prices improve dramatically, the industry has a bad habit of oversupplying the market and driving prices down. The cyclical nature of the storage industry, along with Western Digital’s portrayal of itself from time to time, is what usually keeps the industry’s valuation ceiling low. But things are different this time.
With the COVID-19 pandemic sweeping across global supply chains, it has been virtually impossible for Western Digital and its peers to flood the market with supplies. As a result, the company’s pricing power should remain strong throughout 2022 and into 2023.
What is particularly interesting about the company is that it has multiple ways to generate higher revenue. For example, the rise in PC sales during the pandemic has increased the demand for both internal and external hard drives. The company should also benefit from an extended period of sales of next-generation gaming hardware. New consoles require enhanced storage options.
Beyond just the boost associated with the pandemic, Western Digital is ideally positioned to take advantage of data center expansion. As more companies shift their operations online and move their data to the cloud, the demand for storage will increase exponentially. This should be a boon to hard drive sales, and pave the way for the company’s NAND flash memory solutions to become a primary data center by the middle of the decade.
Even with the industry’s low valuation cap, Western Digital looks like a stark buy with less than six times Wall Street’s fiscal 2023 earnings forecast. To boot, analysts expect double-digit sales growth in fiscal year 2022 and 2023.
The third and final winner you will regret not buying into this Nasdaq market dip is the well-known coffee giant Starbucks (SBUX -1.32% ). Shares are down 37% since hitting an intraday high nine months ago.
Skeptics have three big problems with Starbucks. First, they are concerned about union efforts in various stores across the United States, which could ultimately increase labor costs for the company. Second, there is a rapid rise in input costs beyond just wages. Over the past year, coffee prices have gone up 70%. The third problem is the COVID-19 pandemic, which continues to negatively affect the company’s locations abroad (eg China).
While these are all concrete concerns, none of them should have any bearing on Starbucks’ long-term growth strategy or innovations. For example, Starbucks has had no problems raising prices to keep up with or stay in the inflationary curve. The company’s customer base is exceptionally loyal, and they haven’t been intimidated by modest price increases throughout history.
Speaking of its loyal customer base, Starbucks ended January 2, 2022, with 26.4 million bonus members, up 21% over the same period last year. While Rewards members enjoy perks, such as a free drink or food item, Starbucks earns rewards for improved operating efficiency and higher tickets. Rewards members are more likely to store their payment information on their phone, thus speeding up in-store and in-car payments. They are likely to benefit from mobile ordering as well.
In addition to relying on the growth of loyal customers, Starbucks is innovating in a variety of ways to meet the changing environment. As I discussed earlier, one way to enhance sales and operating efficiencies is to focus on drive-thru payments. All new order boards suggest high-margin drinks and food pairings and allow drivers and passengers to interact with baristas via video chat.
Starbucks still has a long way to go to expand its reach into international markets, and has proven on numerous occasions that it can innovate in the food and beverage space to increase ticket volumes. With stocks valued at the lowest price-to-earnings multiple of the forward year since 2012, now is the time to strike.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.