Nasdaq Bear Market: 3 Proven Winners You’ll Regret Not Buying On The Dip

Whether you’ve been putting your money to work in the stock market for decades or are a relatively newcomer to Wall Street investing, it’s been a challenging start to the year. Both the broad S&P 500 and almost 126 years old Dow Jones Industrial Average officially they hit correction territory in March — they’ve lost at least 10% of their value since hitting their respective all-time highs in early January.

It has been even more difficult for the growth-oriented Nasdaq composite ( ^IXIC -2.55%, which has lost a whopping 22% of its value since hitting a record high five months ago. This spike dip briefly pushed the Nasdaq into a bear market.

While there’s no doubt that a bear market decline can be scary, history also shows that now is the ideal time to put your money to work. After all, every notable drop in major indices throughout history has eventually been obliterated by a bull market rally. It’s just a matter of buying proven winners and making your investment thesis come true over time.

Image source: Getty Images.

With the Nasdaq bear market putting some great companies up for sale, now seems like the perfect time to strike. Here are three proven winners you’ll regret if you don’t buy on the dip.

Metaplatforms

The first proven winner begging to be bought by long-term investors during this “tech wreck” is social media leader Metaplatforms (FB -2.11%† Meta is the company formerly known as Facebook.

Meta skeptics were concerned about the company’s exorbitant investments in the metaverse, which could take quite some time to pay off. The metaverse is the next iteration of the Internet that gives connected users the ability to interact with other people and their environments in 3D virtual worlds. A disappointing growth forecast for 2022, coupled with lower profitability due to higher metaverse spending, has nearly halved Meta’s share price.

But we’re not talking about your run-of-the-mill social media company trying to make its claim here. Meet Meta, the company that operates four of the most popular social media destinations in the world: Facebook, Instagram, WhatsApp and Facebook Messenger. In the fourth quarter, Meta had 3.59 billion people visiting at least one of its properties each month. That is more than half of the adult world population.

Even with growing concerns about a potential recession if the Federal Reserve raises interest rates to stamp out historically high inflation, Meta’s ad-driven business model shows little sign of weakening. Last year, the company reported a 24% increase in ad pricing. Traders fully understand that they will not find wider access to eyeballs through any other platform, which is what gives Meta such incredible pricing power.

Another thing to consider is that Meta Platforms has the capital and operating cash flow to invest aggressively in the metaverse, even if it takes years to pay off. Meta ended 2021 with more than $33 billion in net cash and generated nearly $58 billion in operating cash flow last year. There is plenty of wiggle room with this balance sheet to invest in what could become a multi-trillion dollar opportunity.

Over the past five years, Meta has averaged a P/E ratio of 29. You can now scoop up stocks for less than 14 times Wall Street’s forecasted 2023 earnings.

An engineer placing a hard drive in a server tower of a data center.

Image source: Getty Images.

Western Digital

A second proven winner you’ll regret not buying on the dip during this Nasdaq bear market swoon is the storage solutions company Western Digital (WDC) -1.55%

Western Digital’s worst enemy is often itself and its colleagues. When storage prices improve significantly, the industry has a bad habit of oversupplying the market and pushing prices back down. The cyclical nature of the storage industry, coupled with the fact that Western Digital shoots itself in the foot from time to time, means that this industry tends to have a low valuation ceiling. But this time things are different.

With the COVID-19 pandemic wreaking havoc on global supply chains, it has been virtually impossible for Western Digital and its colleagues to flood the market with supply. As a result, the company’s pricing power should remain strong in 2022 and into 2023.

What is especially intriguing about the company is that it has multiple opportunities to generate higher revenues. For example, a resurgence in PC sales during the pandemic fueled the demand for internal and external hard drives. The company should also benefit from an extended period of sales of next-generation game consoles. New consoles require enhanced storage options.

In addition to a pandemic-related boost, Western Digital is perfectly positioned to take advantage of data center expansion. As more companies shift their operations online and move their data to the cloud, the demand for storage will increase significantly. This should be a boon to hard drive sales and pave the way for the company’s NAND flash memory solutions to become a data center staple by the middle of the decade.

Even with a low industry valuation cap, Western Digital looks like a screaming buy at less than six times Wall Street’s 2023 earnings forecast. In addition, analysts expect double-digit revenue growth in fiscal years 2022 and 2023.

A Starbucks barista who works behind the bar.

Image source: Starbucks.

Starbucks

A third and final proven winner you’ll regret not buying this Nasdaq bear market dip is the well-known coffee giant Starbucks (SBUX -1.32%† Shares are down 37% since hitting an all-time high nine months ago.

Skeptics have three major problems with Starbucks. First, they are concerned about union activity in several US stores, which could ultimately increase labor costs for the company. Second, there are rapidly rising input costs that go beyond just wages. Coffee prices have risen by 70% in the past year. The third issue is the COVID-19 pandemic, which continues to negatively affect the company’s overseas operations (such as China).

While these are all tangible concerns, none of them should have any impact on Starbucks’ long-term growth strategy or innovation. Starbucks, for example, has had no trouble raising prices to keep up with or stay ahead of the inflation curve. The company’s customer base is extremely loyal and modest price increases have historically not deterred them.

Speaking of its loyal customer base, Starbucks ended January 2, 2022 with 26.4 million Rewards members, up 21% from the same period last year. While Rewards members enjoy perks like the occasional free drink or food, Starbucks is reaping the benefits of improved operational efficiency and higher tickets. Rewards members are more likely to store their payment information on their phones, speeding up in-store and drive-thru payments. They are also likely to benefit from mobile ordering.

Starbucks not only relies on growing loyal customers, but also innovates in various ways to respond to a changing environment. As I discussed earlier, one way to drive sales and operational efficiency is to focus on the drive-thru business. All new order boards suggest high-margin drink and food combinations and allow drivers and passengers to interact with baristas via video chat.

Starbucks still has a long way to go in expanding its reach in international markets, and has demonstrated on numerous occasions that it can innovate in the food and beverage space to increase ticket size. With stocks valued at their lowest price-to-earnings ratio since 2012, now is the time to strike.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium consulting service from Motley Fool. We are fur! Questioning an investment thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

Leave a Comment