The stock market may still be showing the occasional flash of bullish brilliance. The fact of the matter is, however, the bigger trend remains bearish. The S&P 500 index now sits more than 10% below its early January peak, after reaching multimonth lows just a few days back. And for many of the S&P 500’s constituents, things have been much, much worse.
They’ve been so bad for a few of those large-cap names, in fact, that some of these stocks are primed for a big bounce. Here’s a rundown of three of these top prospects.
You may know Adobe (NASDAQ: ADBE) as the app that helps people open and read PDF documents on the web. A handful of investors also recognize it’s the software company behind the digital graphics software called Photoshop. Neither seem particularly marketable must-haves in an uncertain environment like the one we’re in right now (especially given that Adobe’s PDF reader — called Acrobat — is free).
The thing is, Adobe is so much more than just a couple of desktop apps these days.
It largely happened while you weren’t looking, and the company didn’t exactly tout the fact. But Adobe now helps organizations with websites maximize those sites’ impact. Its Experience Cloud allows clients to collect and analyze digital data, do e-commerce, and manage web content. Its Creative Cloud platform, meanwhile, still helps users create all sorts of imagery for use on the web.
Best of all, this software is now offered on a subscription basis, meaning Adobe is generating predictable recurring revenue. It’s leveraging these platforms to address what it believes will be a market worth more than $200 billion by 2024, as the world continues to embrace things like digital documents and websites customized for each and every customer. For perspective, Adobe did a little less than $16 billion in sales last year.
Looking further back, Adobe hasn’t failed to grow its top line in any year since 2013 and isn’t expected to do so this year or next either, with analysts calling for top-line growth of 14% and 15%, respectively. That’s why the stock’s 38% sell-off from November’s peak price is such a surprise.
As rough as things have been on Adobe’s investors of late, they’ve been even rougher for Etsy (NASDAQ: ETSY) shareholders. This artsy-craftsy e-commerce name is down a hefty 58% from its November high, and seemingly still in free fall.
The latest wave of selling appears to stem from concerns linked to Russia’s invasion of Ukraine and the subsequent ripple effect that may have on the world’s consumer-facing businesses. Shares initially jumped following estimate-beating fourth-quarter results a couple of weeks back, but that effort petered out once tanks and troops began rolling toward Kiev. Investors may have also had some time to stew on the company’s just so-so 2022 guidance as well as weigh the potential impact of upcoming increased seller’s fees, set to go into effect in April.
Largely being overlooked right now, however, is just how well Etsy’s business is maturing. Think of it as a coming-of-age story. While it’s been around since 2005, in many ways it took the pandemic and some overdue careful planning to turn the platform into the e-commerce powerhouse it’s become. And it’s still something of a work in progress.
It’s arguably worth the wait though. This year’s projected sales growth of more than 19% is expected to accelerate to 21% growth next year, with profits likely to grow just as quickly during that two-year stretch. Not only will disrupted global supply chains be unlikely to impact Etsy’s business, it may well help it in that many of its products are handmade, or secondhand goods that sellers are simply looking to repurpose or let go of.
Finally, add streaming giant Netflix (NASDAQ: NFLX) to your list of beaten-down S&P 500 stocks to scoop up sooner than later.
If you’ve kept up with the company, you likely know the bad news it dished out with its fiscal fourth-quarter numbers posted in late January. While revenue grew a healthy 10% year over year, Netflix only added (net) 8.3 million paying customers; investors were expecting something closer to 8.5 million. Perhaps worse, the company suggests it will only add 2.5 million new subscribers in the quarter currently underway, renewing worries that Netflix is nearing its maximum potential headcount. Picking up meaningful numbers of new customers from here will be very, very tough in the sea of competition the company is now swimming in.
As the old adage goes though, the punishment doesn’t fit the crime. Netflix shares have been halved since November’s high, with investors continually pricing in this growth worry, while at the same time ignoring that Netflix is still the streaming industry’s top dog. Not only is it the service a streamer is most likely to subscribe to, according to data from video entertainment market research outfit Antenna, it’s also the streaming service someone is least likely to cancel. Netflix’s market-leading 2021 content budget of $17 billion may have something to do with that.
None of this is to suggest Netflix won’t get sloppy with its spending or mistakenly dismiss just how good its competition is. The stock’s recent performance, however, doesn’t give Netflix quite enough credit.
Think bigger picture
The thing is, these three stocks aren’t the only ones that have been overly upended for all the wrong reasons. A bunch of other blue chips and stalwarts have also been caught up in the sweeping sell-off. While they also may not be at their exact bottoms, for long-term investors willing to do a little digging, there’s plenty of opportunity here to step into quality stocks at sale prices.
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