Faced with a weaker economy, rising interest rates and other destabilizing market forces, investors have generally shifted their portfolios away from growth stocks. heavy growth Nasdaq Compound The index is down about 25% from its peak last year, and chances are your portfolio is feeling the pressure.
The market is undeniably fragile right now, but the volatility has also created opportunities to invest in top companies at incredible prices. With that in mind, we asked a trio of Motley Fool contributors to identify the stocks they considered the most worth jumping at today’s prices. From where they sit Starbucks (SBUX -0.47%), Airbnb (ABNB -1.18%)and netflix (NFLX -2.98%) look like some of the best battered growth stocks you can buy right now.
Take a summery sip of this beverage giant
Daniel Foelber (Starbucks): Starbucks, both as a company and as a stock, is getting a facelift. The company’s initial growth was fueled by its proliferation of the espresso/internet cafe business model. But today, this model is prevalent and gives Starbucks little competitive advantage over local cafes that offer comparable products with arguably better atmospheres. However, the coffee giant has more than 27 million Starbucks Rewards members and generates 75% of its sales from mobile orders, deliveries and drive-thru customers. This gives Starbucks a leg up on competitors big and small.
To grow its takeout infrastructure, Starbucks needs investment capital. And that means fewer share buybacks. When former CEO Howard Schultz returned as interim CEO in early April, he immediately suspended what would have been the largest stock buyback program in company history in favor of investing in the main activity. It’s a bit of a gamble, as Starbucks will have to prove that it can allocate capital in a way that benefits shareholders more than a direct stock buyback would. But Starbucks repays capital in ways other than redemptions.
Unlike many growth stocks, Starbucks pays a large dividend. At the current share price, this payout offers a 2.5% yield and management has increased the dividend for 11 consecutive years. And although the company has reduced its share buyback program, there is no indication that it will change its pattern of increasing dividends. Starbucks typically announces a dividend increase of $0.04 or $0.05 per share per quarter in August or September. So if we don’t hear anything from Starbucks when it releases its fiscal third quarter 2022 results in a few months, that would be concerning. But for now, further dividend increases still appear to be in the cards.
The next chapter of growth for Starbucks looks like a huge global market opportunity. Still, the stock is down 40% from its all-time high and trading at a price-earnings ratio of 20.5. Add in the attractive dividend, and it looks like a great opportunity to add a marquee company to your portfolio that will pay off for decades.
Use market jitters to buy this travel guide
Keith Noonan (Airbnb): Many of the market’s biggest losers in recent months had previously benefited from tailwinds in performance resulting from pandemic conditions. Software, entertainment and communications companies that saw an increase in engagement when people were doing their most intense social distancing efforts are now facing tough performance comparisons as our behaviors return to their norms of social distancing. before the pandemic.
All of this comes with a multiple squeeze for the market as a whole, which has led to sharp declines in stock prices.
Meanwhile, Airbnb actually saw business surge as social distancing and travel restrictions eased, but the company’s shares still participated in the sharp pullback for growth stocks overall. The short-term rental specialist’s share price is down 30% year-to-date and 46% from its peak. Yet its business and long-term prospects have never looked stronger.
Airbnb’s revenue jumped about 70% year-over-year in the first quarter to $1.51 billion, and its adjusted loss of $0.03 per share was much better than estimate analyst average for a loss of $0.29 per share. Given the seasonality, the company will almost certainly post a substantial profit this year, and with the shares trading at around 43 times this year’s expected earnings, they look attractively valued, especially given the strength of ongoing growth.
The travel industry remains poised for long-term expansion, and Airbnb appears well positioned to take advantage of ongoing trends in digital transformation and working from anywhere. While the company is posting excellent pandemic rebound performance, its substantial drop in valuation appears to be a case of the baby being thrown out with the bathwater. The risk-reward profile of the stock is very attractive, and I believe investors who take a buy and hold approach will reap fantastic returns.
Netflix is down, but definitely not out
James Brumley (Netflix): I fully understand why Netflix shares have been increased this year. This company is not only the biggest and best-known name in video streaming, it arguably created the entire industry. Serious competition has been building since late 2019, but we’ve never really seen Netflix struggle to maintain its historic rate of growth — until now. Partly because of the impact of alternatives like HBO Max and waltz disneyit is (SAY -1.98%) Disney+, Netflix is suddenly experiencing a growth stall that was once unthinkable.
However, the stock is down more than 70% from the November high, and I don’t think it’s an overstatement to say that the sellers have exceeded their target.
For example, the market is not pricing in the imminent launch of a cheaper, ad-supported service in Netflix shares. Co-CEO Reed Hastings originally pitched the idea in April as something the company “would figure out over the next year or two.” Now, rumors say the schedule has been sped up and suggest it could launch as early as October.
And we know the ad-supported model works. Most subscribers to Disney’s Hulu service choose the option with ads, and most of HBO Max’s most recent growth appears to coincide with last June’s launch of an ad-supported tier. Disney is also developing an ad-supported version of Disney+ that is expected to debut before the end of this year. These options are important for increasingly cost-conscious consumers, and I see no reason why Netflix can’t kick-start its growth by jumping on the bandwagon. I wouldn’t be at all surprised if his results were even better than expected. If so, the stock’s recent weakness will look, in retrospect, as an even stronger buying opportunity.