3 stocks down more than 30% that will shine in a bull market
The stock market has given investors a hard time over the past two years. After many stocks hit new highs in 2021, rising interest rates and high inflation have sparked fears of a recession (which is yet to come) and pushed the market lower. These companies could weather a recession and be a valuable component of a portfolio when the time is right.
1. Amazon $AMZN+1.7%
This company probably needs no introduction. The giant colossus built by Jeff Bezos is the world leader in online shopping. From a small bookstore, this company has made it to the top, making its founder the richest man on the planet for many years .
Despite being such a big company, even it has escaped the market turbulence of recent years. Amazon operates in a sector where every increase in interest rates, inflation and related prices is really felt.
Amazon's stock is down 36% from its all-time high a few years ago. The e-commerce leader has been wading through murky waters for the past year. Inflation and a slowdown in e-commerce spending have pushed Amazon's revenue growth into single digits, a far cry from the double-digit annual growth investors have become accustomed to over the past decade.
Entering 2023, Amazon's cloud services business has also begun to show slowing growth as businesses pull back their spending in the face of uncertainty in the economy. But that said, Amazon is certainly capable of growing much faster by the time everything, and especially the economy, returns to normal.
Sales at Amazon's store showed flat year-over-year growth in the first quarter. But given Amazon's advantages in offering Prime and competitive pricing in the largest selection on Earth, it's not a stretch to think that Amazon's e-commerce business will definitely grow faster than 0%when the economy is stronger.
Investors should also watch for a new wave of demand for artificial intelligence (AI) services to spur accelerating revenue growth in Amazon Web Services, where Amazon is also moving with its cloud services and subscriptions.
All show several ways Amazon can deliver returns for long-term investors. The stock is up 43% since the beginning of the year.
2 Year $ROK-1.0%
Roku shares have been hit hard. The current difficulties stem from advertisers cutting their budgets, and that's not likely to resolve itself in the near future.
But the long-term outlook looks compelling, so the current price looks very ridiculous if you have a long time horizon.
Roku has two parts to its business: the hardware or player segment and the ad or platform business.
Having two separate but complementary parts is already a feature that is considered very attractive in the business. The hardware business, which includes sales of its streaming devices, has shown low growth and then declining sales in recent years as supply chain backup and inflation affect prices and spending.
However, hardware sales grew 18% year-over-year in the first quarter of 2023 , just as the advertising business began to falter. Roku is the streaming device industry leader with a 43% market share at the end of the first quarter, its largest lead over any of its competitors so far.
Roku stock is down 88% from its all-time high, but up 42% in 2023. The stock is trading at a low price-to-sales ratio of 2.6, and so there is a significant probability that the stock will rise immediately after the start of a prolonged and strong bull market.
3. Home Depot $HD+0.3%
Similar to the housing market, Home Depot boomed during the pandemic as stay-at-home orders and social distancing led Americans to spend more money on their homes, build, put on new paint, or buy a new refrigerator.
Home Depot's stock is down nearly 31% from its 2021 year-end high, and its recent results show the challenges the company faces in the current economy with high interest rates.
Sales in the quarter fell 4.5% and total revenue fell 4.2% to $37.3 billion. Meanwhile , earnings per share (EPS) fell from $4.09 to $3.82 as margins narrowed. the company had to lower its outlook for the year. It now expects revenue and comparable sales to decline 2% to 5% and EPS to fall 7% and 13%, respectively.
The company is clearly struggling in a difficult and challenging housing market, but there is no doubt that Home Depot's long-term competitive advantages are intact.
This company is the leader in the home improvement retail duopoly with Lowe's ($LOW+1.0%) , and its economies of scale, national footprint and relationships with experts make it difficult for smaller chains to compete in areas like price.
Meanwhile, though, this market is still growing a lot in the U.S., especially with some estimates saying there's a housing shortage and as many as 4 million homes in the country.
This is not a financial advice business. I am providing publicly available data and sharing my views on how I would handle the situation myself. Investing is risky and everyone is responsible for their decisions.