Wall Street is acting confused, which is perfect for active traders. But this makes long-term investing very difficult because of the whipsaw price action. Luckily this back-and-forth process created opportunities in the form of a bunch of bargain stocks to buy.
Investors still need to be careful. We are still under fire from a very hostile U.S. Federal reserve policy in the name of controlling inflation. Nobel-prize-winning economist Milton Friedman believed that only the government can create inflation. In September of 2012 he said that “inflation is created in Washington because only Washington can create money.”
Luckily, the private sector is slightly more decisive with its policies. As a result, most large companies will likely survive the tighter spending conditions. But meanwhile, their equities have suffered enough to where they’ve become bargain stocks. Nevertheless I would not take the entire position at once.
Here are the stocks I see as the biggest bargain stocks right now.
Shopify (NYSE:SHOP) is having a rough time lately. From last year’s high, it fell more than 80% and it still can’t find footing. It hasn’t had two green weeks in a row in 29 weeks.
But unless the equity markets or Shopify itself are going to collapse, this has to eventually end. Meanwhile, it shall remain on a list of bargain stocks to buy in my book. Its value is not obvious because it carries a high stock price at nearly $400. Furthermore its price-to-earnings ratio is super high because it focuses on growth.
The right metric here is the price-to-sales ratio, and that’s single digits. This puts it 30% cheaper than Tesla (NASDAQ:TSLA). For now, Shopify should focus on growth and should spend a lot to get it. The profitability metrics like P/E can normalize later.
SHOP stock now sits at the base of the pandemic bottom. If there is any more downside from here it should be shallow. Therefore the upside opportunity is favorable.
I was a skeptic of Roku (NASDAQ:ROKU) for a long time, mainly because they were in business for 16 years without turning a profit.
Then the market came to them, and they shut me up. In the last three years, management tripled sales without creating bloat.
ROKU stock is part of the bargain stocks posse for two simple reasons. Its price-to-sales is only 4.5, and it can create roughly $250 million in cash from operations. The reason it has fallen out of favor with investors is pure fear. Experts worry about the chip shortage negatively impacting its performance.
Until I see significant bearish evidence in the financials, I will give ROKU the benefit of the doubt. Thanks to a 75% stock correction, it looks very affordable.
This next of our bargain stocks rallied hard on Monday along with other Chinese stocks. But Alibaba (NYSE:BABA) still carries extra risk because of its nationality.
For more than a year, equities from China have suffered a string of political blows. Meanwhile, BABA’s business continues to thrive. There is divergence between the stock blight and the business success. This is enough to earn it a place on our list of bargain stocks.
Fundamentally, BABA stock is now extra cheap with a price-to-sales below 2. This means investors’ expectations are rock bottom, so it will be hard to disappoint them from here. BABA’s 6% rally on Monday could lead to a small pullback for a breather. But in the long run, it has a long way to go.
It most likely won’t recover all of its prior glory but this fast grower ought to command a better premium. After all, not many companies can almost quadruple in size in five years while netting a profit the whole time, with $20 billion in cash from operations. Their singles day holiday sales topped $100 billion.
Upstart’s (NASDAQ:UPST) management reported earnings last month and it was a disasterous reaction. Notice I didn’t say the results were bad, because they were not. In fact they grew revenues over 150%, yet UPST stock lost 60% of its value.
A principle driving factor behind the fall was experts fearing potential loan defaults from loans they carried too long.
The rising interest rates are also drying up the appetite to lend. This put a crimp of the available loan buyers for UPST.
Revenues are now four times bigger than 2020, and they still carry a low price-to-sales under 5. For this discrepancy I placed it on my list of bargain stocks today. Once it stabilizes from its walloping, investors are likely to realize they sold a quality opportunity too cheaply.
I am not expecting its all-time highs to return. Those too were also wrong at the time. But somewhere in the middle will lie the truth for this fast grower. Rising above $55 per share may bring out the momentum buyers to try and fill the gap — and it is a massive one that could bring 30% of upside quickly.
Twilio (NYSE:TWLO) has all the right buzzwords. It is a cloud communication company right in the thick of the right trends. This hasn’t stopped its stock from heading straight down since February of last year. The selling intensified last summer, so now it sits 74% below its high-water mark.
This tremendous devastation has created a relative bargain stock scenario. Its price-to-sales ratio is now less than half that of 2019 and 2018. The pandemic rally created bloat in it, like most other cloud stocks. That situation has normalized, and the pendulum has swung too far the other way.
TWLO stock being a momentum stock, it moves extremely fast, so it is daunting to trade. That’s why it is important that we don’t go all in even when the value proposition is favorable.
While the indices are struggling to stabilize, TWLO could easily revisit its recent lows. This by definition leaves another 10% of downside potential risk. But when markets recover, it will likely be among the leaders.
For what it’s worth, Ark Invest is still accumulating shares.
This is not the old Disney (NYSE:DIS) stock. It is now a streaming powerhouse chasing Netflix (NASDAQ:NFLX). But it has fallen on hard times of late, partly through non-business headlines. It is in a political shouting match with the state of Florida.
Meanwhile, this is distracting from its accomplishments for the last two years. The global shutdown had the potential to deal a deadly blow to its theme park business. Disney made a living out of packing people shoulder to shoulder. Somehow it emerged from the test without too much damage, and perhaps even stronger.
I doubt that it will face tougher circumstances that that for a long while.
The value in the stock comes from the fact that it’s still profitable. It also generated over $5 billion in cash from operations last year. And somehow, the price-sales ratio is under 3.
Revenues for the last 12 months are 11% larger than before the pandemic. However, DIS stock is still down 30% for the year to date. This suggests that there should be plenty of room to run in the long term.
Adobe (NASDAQ:ADBE) stock fell back into levels not seen since 2020, so it has shed the stock froth from last year. Its tangible fundamental value has also benefited from this equity shellacking. As a result it now has its cheapest price-to-earnings ratio in at least seven years.
That alone doesn’t ensure a bottom for the stock. However it suggests that owning a partial position now is not an obvious mistake.
This is a growth stock and such stocks tend to fall precipitously and surprise investors. Timing their bottoms perfectly is nearly impossible. We should therefore resolve ourselves to finding potential zones of contention. They tend to act as strong support which can turn into a bottom in hindsight.
This is one, provided the indices don’t have far more to fall.
Management has delivered more than 20% growth for years, with a big net income to boot. With more than $7 billion in cash from operations ,they leave no doubt over their competence.
ADBE reports earnings soon and those add another layer of doubt. The reactions to them is binary, but maybe it pops like Salesforce.com (NYSE:CRM) did.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.