It has been difficult for the market lately. The Nasdaq composite (NASDAQINDEX: ^IXIC) is currently more than 20% below its late March high and nearly 30% below its November peak. And of course the past few weeks have been much, much worse for some Nasdaq-listed stocks.
If you think many of these bestselling names are now priced too low to pass up, you’re right. Here’s a closer look at three of the Nasdaq’s most knocked down stocks that could be close to bottoming out and ready to bounce back.
okta (NASDAQ: OKTA) is a cybersecurity outfit. The company provides a way to ensure that only authorized users log on to a network, whether they are employees or customers of a company.
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There was a need for such services before COVID-19 took hold, but as millions of people started working from home during the pandemic, the need for such security measures grew. And it still swells. Okta’s revenue is expected to grow 37% this fiscal year and nearly 34% next year. While it’s still unprofitable, next year’s growth should take a big bite out of that loss, bringing gains in sight in the foreseeable future.
This pace of progress has failed to impress investors lately. The stock is down 66% since November, reaching new 52-week lows earlier this month.
However, Okta’s leadership of a broad tech sector sell-off appears to be rooted in the wrong idea. That’s the assumption that as the coronavirus pandemic subsides, so will the demand for secure logins. It will not. If anything, it’s still growing. In Arkose Labs’ 2021 State of fraud report, the digital fraud prevention outfit noted a 70% increase in fake new account registrations early last year, adding that so-called “credential stuffing” was responsible for 29% of all cyber-attacks it monitored.
Therefore, Mordor Intelligence estimates that the digital authentication management market will grow by an average of 22% annually between 2018 and 2026. Okta has already proven that it is more than capable of more than its fair share of that market growth.
If you want proof that even the market’s most beloved stocks can sometimes fall out of favor, chew on this: Amazon (NASDAQ: AMZN) stocks are now priced 35% below their March high, and are down more than 40% from their November high.
Surprised? Do not be. Higher prices since the middle of last year are not just annoying. Higher fuel costs, material costs and labor costs can be downright problematic for a company like Amazon, which, despite its size, operates on paper-thin profit margins. And, as CFO Brian Olsavsky made clear at the company’s conference, looking at disappointing first quarter results, “[T]Fuel costs are about one and a half times higher than they were a year ago. Combined with the year-over-year increases in wage inflation, these inflationary pressures have added about $2 billion in incremental costs compared to last year.”
For perspective, the company generated $3.7 billion in operating revenue for the quarter in question, more than half the year-ago comparison, despite higher revenues. In addition, the only profitable business Amazon managed during the past quarter was its cloud computing company, Amazon Web Services. The consumer-focused, online retail operation actually lost money for the three-month period ended March.
So why get into the stock now? Because it’s Amazon. It has been here before and adjusted where necessary. That will do it again. As CEO Andy Jassey noted in the first quarter report, “Nowadays, as we no longer chase physical or human capacity, our teams are completely focused on improving productivity and cost efficiency across our fulfillment network.”
Finally add Adobe (NASDAQ: ADBE) on your list of humiliated Nasdaq stocks ready to bounce back.
Most computer users will recognize Adobe as the name after the pdf (portable document file) type of file that allows easy delivery of printable documents over the web. Veteran investors may recall that Adobe also largely pioneered software for creating, managing, and enhancing digital images with a program called Photoshop. While there are many alternatives these days, Photoshop is still there, just like the PDF file.
What most investors don’t realize, however, is that Adobe is so much more than Photoshop and PDF files today. It offers full-fledged platforms that help enterprise-level customers create and optimize websites and online advertising campaigns, and yes, digital photos and graphics creation. The one called Experience Cloud allows its customers to not only manage and promote an ecommerce site, but also collect and analyze data about users and traffic. It can even help business users to customize the look and feel of a website for different visitors.
The other, Creative Cloud, is a digital image creation and enhancement tool that can do more with a photo than most people ever thought possible. There is nothing but either offer. Even in a tough economy, customers can’t just give up access to these tools.
These platforms are largely rented out rather than sold directly, made available as a cloud-based app rather than downloaded software. The end result is an increasing amount of recurring revenue. However, the shift in the company’s business model is not hindering growth. Analysts expect revenue growth from 13% this year to accelerate to a clip of nearly 15% next year, with comparable earnings growth in the cards.
Given this kind of consistent forward progress, the stock’s 44% drop since November is an opportunity to plug in at a spot price.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, serves on the board of directors of The Motley Fool. James Brumley has no position in any of the listed stocks. The Motley Fool holds positions in and recommends Adobe Inc., Amazon and Okta. The Motley Fool recommends the following options: Long January 2024 call $420 on Adobe Inc. and shortly January 2024 call $430 on Adobe Inc. The Motley Fool has a disclosure policy.