Even the best stocks to buy often experience occasional operational missteps or negative headlines that lead to selloffs. Rational investors can take advantage of indiscriminate selling that ignores the fundamental outlook.
As we navigate the earnings seasons, these price gyrations are more evident. In certain cases, the selloff might be unwarranted or an overreaction. For instance, the long-term growth story might remain intact, but the stock sells off significantly because of a slight miss.
If you are patient, you will make a lot of money by capitalizing on the markets’ flimsy nature. You can pick wide-moat stocks at bargain prices by recognizing competitively advantaged businesses that have been unfairly punished.
Over the past month, the following stocks have sold off despite their stellar long-term outlook. Negative headlines have been a headwind, but their competitive advantages remain in place. Capitalize on this weakness to add these long-term winners to your portfolio.
Zoetis (ZTS)
Zoetis (NYSE:ZTS) sells various animal vaccines and medicines and is a play on the growing humanization of pets trend. As more people own pets today, they are splurging more on them, just like they would with their kids.
As of this writing, ZTS stock is hovering near 52-week lows. On March 26, the European Commission launched an antitrust investigation against the company for preventing the launch of a competing biologic for dog pain. The stock further weakened when the Wall Street Journal reported that its arthritis drugs for dogs, Librela and Solensia, caused adverse side effects.
These headlines hit the stock hard, especially the adverse effects news since Zoetis has estimated over $1 billion in annual sales for these franchises. Already, Zoetis has refuted the claim and noted that over 18 million doses have been administered, with less than 1% showing side effects.
Bank of America agrees and maintained its “buy” rating and $205 price target. Analyst Michael Ryskin noted that the side effects cited were already known. Furthermore, they highlighted that these adverse effects are rare.
Zoetis is one of the most profitable secular growers, posting 35% operating margins in the last three fiscal years. At 27 times forward earnings, it’s among the stocks to buy as investors flee.
MSCI (MSCI)
MSCI (NYSE:MSCI) has fallen from above $600 to below $500. On January 17, the company was a target of a short report from Spruce Point. Although the stock continued rallying for a while, it has fallen precipitously since January 30. The final nail in the coffin was on April 23, when a revenue miss resulted in a more than 10% drop.
Despite these challenges, MSCI is one of the best stocks to buy today. Its index business is a crown jewel that boasts unique competitive advantages. It monetizes its popular index benchmarks like MSCI Emerging Markets and MSCI EAFE through asset-linked fees, subscriptions and transaction royalties. It also has a fast-growing ESG and climate data unit that accounts for 10% of revenues.
Once asset managers pick an index benchmark, they rarely change. As a result, MSCI has garnered over $15 trillion in benchmarked assets. Due to its strong pricing power and retention, it earns over 50% operating margins and generates tremendous free cash flow.
MSCI often takes advantage of substantial drawdowns to buy back stock. This weakness is an opportunity. Over the long term, it’s one of the stocks to buy, given the secular shift from active to passive investments.
Snowflake (SNOW)
This data warehouse and data lake company hasn’t recovered from the post-earnings selloff. Fundamentally, the stock is in strong shape but Frank Slootman’s departure from the CEO position and weaker guidance have caused investors to flee.
However, Snowflake (NYSE:SNOW) remains one of the stocks to buy for various reasons. First, even though Frank Slootman is departing, incoming CEO Sridhar Ramaswamy is capable. He spent 15 years at Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and led the tech giant’s Ads and Commerce business, growing revenues from $1.5 billion to over $100 billion.
Secondly, although the guidance was below Wall Street expectations, it was still solid. Management expects 26 – 27% product revenue growth in fiscal year 2025. Furthermore, they project free cash flow margins of 29%.
In terms of the long-term outlook, Snowflake’s secular growth story continues. Its platform, which is interoperable on numerous public clouds, allows enterprises to query their data easily. The market opportunity is expanding with AI, which is increasing the amount of data exponentially. Moreover, Snowflake has launched several AI products to enable customers to extract structured data.
Putting it all together, Snowflake remains one of the stocks to buy for growth. Invest alongside CEO Sridhar Ramaswamy, who recently bought shares worth $5 million.
On the date of publication, Charles Munyi did not hold (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.
