3 Stocks Down Big in '22 That Are Worth Buying
Nearly one out of five S&P 500 stocks are down at least 20% heading into the holiday shortened trading week. These three companies have been slaughtered like an Easter lamb—but...
Let's give the stock market some credit.
A 6% decline in the S&P 500 year-to-date is a model of resilience if there ever was one. U.S. stocks have managed to hang in there pretty darn well in 2022 despite the backdrop of a major geopolitical crisis, rampant inflation, and surging interest rates. With that potent concoction of risk, things could certainly be worse.
Unfortunately, things have been a lot worse for some large-cap companies that have seen billions of dollars slashed from their valuations. Growth stocks and names perceived as big pandemic winners have been especially hard hit. While the market's modest pullback following three years of double-digit percentage returns is respectable, a look under the hood tells a different story for some stocks.
Nearly one out of five S&P 500 stocks are down at least 20% heading into the holiday-shortened trading week. Some appear to be bear traps, while others look oversold.
These three companies have been slaughtered like an Easter lamb—but are destined to rise again.
Is Shopify Stock a Good Long-Term Investment?
Shopify Inc. (NYSE: SHOP) is down 56% year-to-date and almost 70% from its November 2021 peak. The Canadian e-commerce giant has been in the crosshairs of the tech selloff for some time now due to concerns about slowing growth. The effect of rising interest rates on its lofty valuation has only made matters worse.
While it is true growth has slowed in recent quarters, this was inevitable. Merchants flocked to Shopify to set up their online storefronts in the early days of the pandemic. Naturally demand has slowed with many small businesses' web presence now up and running and physical stores seeing improved traffic.
The market is also worried about the company's ramp in spending which will likely weigh on near-term profitability. But it is spending that will ultimately drive Shopify's next burst of growth with international expansion still a huge opportunity. Management's aggressive move into the fulfillment service space while accompanied by a $1 billion outlay over the next couple of years should ultimately be money well spent as Shopify takes a page out of the Amazon playbook.
Shopify amassed a strong customer base during the pandemic from which it can generate sustainable growth. New offerings like Shopify Plus and partnerships with social commerce platforms should only expand its market. The 80x forward P/E appears daunting but given the multiyear earnings growth story ahead, Shopify is worth the price here.
Will Zoom Stock Ever Go Back Up?
After giving back 45% of its massive 2020 gains last year, Zoom Video Communications, Inc. (NASDAQ:ZM) is down another 40% year-to-date. The pandemic superstar may seem like a falling knife but the risk-reward is favorable.
The reset button has effectively been pressed on Zoom with the stock trading back where it did when the coronavirus first hit the U.S. So with all past growth effectively discredited, is a major pandemic setback the only catalyst for the company? No.
The Covid-19 outbreak created more than just a one-time windfall for Zoom. It ushered in a shift to a hybrid home/office model that will become the norm for the foreseeable future. Companies that poured millions of dollars into remote work setups learned that employees can be effective outside the office—and that they are better prepared should another crisis unfold. Meanwhile, people have embraced the hybrid model and are demanding it from current and prospective employers.
As a result, Zoom's unified communications as a service (uCaaS) platform should remain a valuable tool for businesses of all sizes worldwide. And while plenty of competitors have emerged, Zoom's now globally recognized brand and international expansion opportunities will keep it relevant in the post-pandemic economy for years to come.
Is Toll Brothers Stock Undervalued?
Toll Brothers, Inc.'s (NYSE: TOL) 37% decline has largely been the result of rising mortgage rates and the assumed impact on home building activity. After delivering nearly 10,000 upscale homes across 24 states last year, elevated lumber prices are also expected to deter would-be home buyers.
Yes, mortgage rates are increasing rapidly but they remain near historic lows. And with existing homes for sale still woefully limited across the U.S., new home construction should continue to be in strong demand.
The recent S&P CoreLogic Case-Shiller National Home Price index reading showed that selling prices were up 19% through the 12 months ended January. The price of lumber, while still high, has dipped back below $1,000 and is well off its May 2021 peak. So, with home inventory very low and prices sky high, building a new home is still looking like a viable alternative.
This is good news for homebuilders and Toll Brothers in particular given its positioning in the high-end market. At 6x trailing earnings, it is looking like a great time to build a position.
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