Nasdaq bear market: 3 proven winners you’ll regret not buying on the downside
Whether you’ve been investing your money in the stock market for decades or are new to investing on Wall Street, it’s been a tough start to the year. Both the wide base S&P500 and almost 126 years Dow Jones Industrial Average officially reached correction territory in March – they have lost at least 10% of their value since hitting respective all-time highs in early January.
It’s been even harder for growth-oriented companies Nasdaq Compound ( ^IXIC -2.55% ), which has lost up to 22% of its value since hitting an all-time high five months ago. This spike in decline briefly pushed the Nasdaq into a bear market.
While there’s no doubt that bear market declines can be scary, history also shows that now is a great time to put your money to work. After all, every notable decline in major indices in history has eventually been erased by a bullish rally. It’s just about buying proven winners and allowing your investment thesis to materialize over time.
With the Nasdaq bear market putting a number of big companies up for sale, now seems like the perfect time to strike. Here are three proven winners you’ll regret not buying on the downside.
The first clear winner just begging to be bought by long-term investors during this ‘tech wreckage’ is the social media leader Metaplatforms (FB -2.11% ). Meta is the company formerly known as Facebook.
Meta skeptics have worried 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 to interact with other people and their surroundings in 3D virtual worlds. A disappointing growth forecast for 2022, coupled with weaker profitability due to increased spending in the Metaverse, nearly halved Meta’s share price.
But we’re not talking about your ordinary social media company trying to claim its position here. Meet Meta, the company that controls four of the most popular social media destinations 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 assets each month. That’s more than half of the world’s adult population.
Even with growing concerns about a possible recession as the Federal Reserve raises interest rates to stamp out historically high inflation, Meta’s ad-driven operating model shows few signs of weakening. Last year, the company reported a 24% increase in ad pricing power. Merchants fully understand that they won’t find wider access to eyeballs through any other platform, which gives Meta such incredible pricing power.
Another thing to consider is that Meta Platforms has the capital and operating cash flow to invest aggressively in the metaverse, even if the payout is years away. Meta ended 2021 with over $33 billion in net cash and generated nearly $58 billion in operating cash flow last year. There is plenty of leeway with this track record to invest in what could become a multi-trillion dollar opportunity.
Over the past five years, Meta has averaged a price-to-earnings ratio of 29. You can buy stocks right now for less than 14 times Wall Street’s forecast earnings for 2023.
A second proven winner you’ll regret not buying low during this Nasdaq bear market slump is the storage solutions company western digital (WDC -1.55% ).
Western Digital’s greatest 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, coupled with Western Digital occasionally shooting itself in the foot, is what typically keeps the valuation cap low on this industry. But things are different this time around.
With the COVID-19 pandemic wreaking havoc on global supply chains, it has effectively been impossible for Western Digital and its peers to flood the supply market. As a result, the company’s pricing power is expected to remain strong through 2022 and into 2023.
What is particularly intriguing about the company is that it has several ways to generate higher income. For example, a pick-up in PC sales during the pandemic sparked demand for internal and external hard drives. The company should also benefit from an extended period of sales of next-generation game consoles. New consoles require enhanced storage options.
Beyond just a pandemic-related boost, Western Digital is perfectly positioned to benefit from data center expansion. As more companies move their operations online and move their data to the cloud, the demand for storage will increase significantly. This should be a boon to hard drive sales and pave the way for the company’s NAND flash memory solutions to become a data center staple by mid-decade.
Even with a low valuation cap for the industry, Western Digital looks like a screaming buy at less than six times Wall Street’s fiscal 2023 earnings forecast. To boot, analysts expect sales growth double digits in fiscal years 2022 and 2023.
A third and final proven winner you’ll regret not buying during this Nasdaq bear market decline is the well-known coffee giant Starbucks (SBUX -1.32% ). Shares have fallen 37% since hitting an all-time intraday high nine months ago.
Skeptics have three big problems with Starbucks. First, they are concerned about unionization efforts at various stores across the United States, which could ultimately increase labor costs for the company. Second, input costs are rising rapidly beyond wages alone. Over the past year, coffee prices have increased by 70%. The third issue is the COVID-19 pandemic, which continues to negatively affect the company’s overseas locations (such as China).
While these are tangible concerns, none of them should impact Starbucks’ long-term growth strategy or innovation. For example, Starbucks had no problem raising prices to follow or stay ahead of the inflationary curve. The company’s customer base is exceptionally loyal, and modest price increases have never scared them off.
Speaking of its loyal customer base, Starbucks ended January 2, 2022, with 26.4 million Rewards members, up 21% from the prior year period. While Rewards members enjoy perks, such as an occasional free drink or food item, Starbucks reaps the rewards of improved operational efficiency and higher ticket prices. Rewards members are more likely to store their payment information on their phone, speeding up in-store and drive-through checkout. They are also more likely to take advantage of mobile ordering.
In addition to building on its growing loyal customer base, Starbucks is innovating in a variety of ways to respond to an ever-changing environment. As I mentioned before, one of the ways it aims to drive sales and operational efficiency is by focusing on its drive-thru operations. All new control panels suggest high-margin drink and food pairings and allow drivers and passengers to interact with baristas via video chat.
Starbucks still has a long streak to expand its reach in international markets and has demonstrated time and time again that it can innovate on the food and beverage front to increase ticket sizes. With stocks priced at their lowest P/E multiple for the year ahead since 2012, now is an opportune time to strike.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.