Nasdaq bear market: 3 absolute deals to buy now and hold for 10 years
No matter how long you’ve been investing your money in the stock market, the past five months have been tough. Since the beginning of the year, widely followed Dow Jones Industrial Average It’s down as much as 15% from its all-time high. pointer Standard & Poor’s 500 It performed modestly worse, with an intraday dip from peak to trough that briefly touched 20%.
But it is driven by growth Nasdaq Composite (^ IXIC 0.00%) It was moved to the woodshed. In the six months since its record high, the Nasdaq has fallen as much as 31%, putting the index firmly in a bear market.
While bear markets can be intimidating due to their rapid negative moves, increased volatility, and weak investor sentiment, they are also known as the ideal time to invest your money. After all, every major drop in the major indices, including the Nasdaq, was eventually erased by a bull market rally.
With the crash of the Nasdaq, a number of divorced deals emerged. All that is required for investors to get richer is to buy these stark deals and hold them for the next 10 years.
The first trade obtained during the bear market of the Nasdaq is none other than FAANG stock the alphabet (Google website 4.20%)(The Google 4.16%)the parent company of the Internet search platform Google and the popular streaming platform YouTube.
Although the broader market saw a rebound last week, Alphabet shares posted a 52-week peak-to-bottom drop of 33% as of May 24. Alphabet is an advertising-driven company, and advertising revenue tends to be one of the first things to be affected when economic growth slows or the US economy enters a recession. With the Federal Reserve intent on controlling inflation – and ready to raise interest rates quickly to do so – some level of economic calm should be expected.
However, the expected short-term stagnation in the US economy is not a reason to fear a margin when a company like Alphabet offers three clear competitive advantages.
First of all, the Internet search platform Google is a real monopoly. Data from GlobalStats shows that Google captured between 91% and 93% of the worldwide search share over the next two years. Playing this dominant role in global search allows Alphabet to have excellent pricing power when it comes to ad placement.
Second, YouTube has become the second most visited social media site on the planet, with an estimated monthly active users of 2.2 billion. Not surprisingly, Alphabet has been able to turn this interest into steady ad growth and a premium YouTube membership by a high margin.
And third, Google Cloud is number 3 globally in spending on cloud infrastructure. Even with lower ad sales in the first quarter, Google Cloud achieved 44% sales growth compared to the same period last year. It can be said that cloud infrastructure is still in its early stages of development. Most importantly, cloud-based operating margins should be much higher than ad-based operating margins over time. What this means is that Google Cloud could double its operating cash flow per share by 2025.
Alphabet has traded at an average multiple of 19 times its cash flow over the past five years. Opportunistic investors can buy shares now for nearly 8 times the cash flow projected in 2025.
Another absolute bargain to buy the fist and hold it for 10 years as the Nasdaq plunges into a bear market is furniture stocks The LOVSAC company (the love 3.24%).
I don’t know about you, but just saying the phrase “furniture stock” is usually enough to make me sleepy. Most furniture chains rely on foot traffic in brick-and-mortar stores and purchase their merchandise from a small group of wholesalers. It’s a fairly boring industry ready to tumble, and that’s where Lovesac comes in.
Lovesak is a designer and retailer of modular furniture. Although initially known for its beanbag-style chairs (“bags”), approximately 88% of Lovesac’s revenue is now derived from the sale of sactionals (the company’s term for its divisions). These modular sofas can be rearranged in dozens of ways to fit almost any living space.
What makes sactionals so attractive is the customization and options included, as well as the eco-friendly construction. Sactionals has over 200 different casing options, which means they’ll work with just about any color or theme inside the home. They also have several upgrade options, including wireless charging stations and high-level surround sound systems included. But the best part of the sactionals may be that the yarn used in their production is made entirely from recycled plastic water bottles.
Although historically high inflation has investors worried about retail stocks, Lovesac should feel less of the sting than most retailers. This is because his furniture tends to be at a higher price. Since the company’s primary customer is usually middle to upper income earners, inflation shouldn’t have a huge impact on their buying habits.
Another factor that differentiates Lovesac is its multi-channel sales platform. When the pandemic hit, Lovesac was able to convert about half of its sales online. Although it has 146 retail locations in 39 states, the company generally operates a low-cost structure that includes online sales, pop-up showrooms, and in-store and online brand name partnerships. The end results are higher margins than traditional furniture stock and – so far – much faster growth.
Currently, Lovesac shares can be bought for 8 times Wall Street’s expected earnings in fiscal 2023, despite maintaining its annual sales growth of more than 20%.
The third absolute deal that investors can buy with confidence now and keep for the next 10 years is social media stocks Pinterest (pins 4.66%).
Right now, Pinterest is dealing with a double whammy. First, the numbers of Monthly Active Users (MAU) have been declining over the past year. Wall Street usually views MAU declines as bad news for social sharing companies. The other issue is the aforementioned increased possibility of an economic slowdown or recession. Like Alphabet, Pinterest is mostly an advertising platform.
While both of these headwinds are appreciable, neither is a threat to Pinterest’s long-term growth prospects.
For example, the drop in Pinterest’s MAU rate from 478 million in March 2021 to 433 million in March 2022 could be explained by increased vaccination rates against COVID-19. With life returning to normal semblance, people don’t spend much time on the internet anymore. But if you ignore the initial emergence of MAU and the subsequent decline during the pandemic and broaden the user growth lens to include the past five years, you will see a consistent upward trend in monthly active users.
What is much more important from an investment perspective than the sheer number of active users on the platform is Pinterest’s ability to monetize its existing users. In this regard, there were no problems. Despite the 9% decline in average monthly rates year-over-year, global average revenue per user (ARPU) jumped 28% year-over-year in the first quarter. What this ARPU number shows is that advertisers are willing to pay to reach Pinterest’s growing shopper base.
Another thing to keep in mind about Pinterest is its unique operating model. while appleiOS privacy changes affecting data tracking have Wall Street worried about ad-reliant social media companies, and Pinterest appears virtually immune to this privacy shift. That’s because it doesn’t have to rely on “likes” to help advertisers target users. The whole premise of the Pinterest platform is to get its users to willingly share the things, places, and services they love. This allows merchants to accurately target users with their products and services.
What investors get with Pinterest is a company capable of 20% sustainable annual revenue growth that can be bought at about 18 times Wall Street’s 2023 earnings forecast. It’s a bargain for a company that should be somewhat immune to headwinds affecting media stocks. social.