It's been a tumultuous start to 2022. Between the threat of higher interest rates, slowing economic growth, and an invasion in eastern Europe, many growth stocks have been absolutely hammered in recent months.
Deals can be had after the sell-off, though, so it's time for those with a long-term mindset to start putting cash to work. With that in mind, three Fool.com contributors did (or are planning to do) some shopping. It feels awful to buy when the news is terrible, but it's a good exercise to do so anyway, document the reasons, and then look back after the crises have abated a little. Here are the shopping lists.
I bought two stocks that crashed, and one steady Eddie
Nicholas Rossolillo (Shopify, Doximity, and Applied Materials): Over the course of any given year, I almost always have spare cash in my investment accounts. The amount of cash varies (typically no more than 10% of my account's value), but it's always there ready to deploy at an opportune time. With growth stocks down big despite the businesses themselves continuing to expand at a healthy pace, March seemed like the right time to blow all of that cash on a spending spree.
I allocated to existing positions across my portfolio, but Shopify (NYSE: SHOP) and Applied Materials (NASDAQ: AMAT) were two of the top buys. Shopify in particular has been a great investment over the years, and I still see a really long runway as it helps small businesses claw back some power in the retail world with its extensive offerings for e-commerce. Shares aren't cheap, considering that Shopify will begin spending a bit more aggressively in the coming years to build out its Fulfillment Network, but I believe Shopify merchants will like the inventory management flexibility and the ability to offer quick delivery times to customers from this project. I thus added more to my existing position.
Applied Materials, on the other hand, is a more mature business. Sure, it also expects to grow at a double-digit percentage pace this year -- momentum it expects to carry over into 2023 too, as a global chip shortage has chip manufacturers scrambling to increase their production capacity. But Applied Materials and a small handful of peers dominate the development and sale of machines needed to fabricate chips. As a result, they tend to be a slower but steadier way to play the semiconductor industry, and spin off plenty of spare cash that's returned to shareholders via a dividend and share buybacks. Trading for less than 15 times one-year forward earnings, Applied Materials was too cheap to ignore, so I bought more.
For my third stock, I'd been eyeing a new-ish play in the telehealth space: Doximity (NYSE: DOCS). I already own some other telehealth and healthcare technology stocks, and they've been hammered as their early pandemic boom has gone bust.
But I'm still optimistic that businesses trying to make delivery of patient care more efficient have a bright future. Doximity operates a sort of social network for medical professionals (sometimes compared to LinkedIn), from which care providers can video-call or message patients, send and sign documents, and manage their schedules. It's growing fast, and generating an incredible amount of free cash flow. That's a potent combo, so I started a position and will buy more over time if Doximity's impressive story continues.
Speak softly and carry a big check
Anders Bylund (Netflix, Autodesk, and Polkadot): I don't trade often. My last stock trade was all the way back in December, and I haven't picked up any cryptocurrencies in the last two months. I'm a patient guy with a very long time horizon for my investments, so I don't worry too much about day-to-day price moves, timing the market to perfection, or pouncing on the hottest tips. My natural tendency toward stoic composure is also amplified by the Fool's uncompromising disclosure rules, which often stop me from making the trades I have in mind.
Well, it's time to take some action in this inviting market. All of the major market indices have fallen more than 5% in 2022, and many of my favorite stocks and cryptocurrencies are on fire sale right now.
Those disclosure rules won't let me take immediate action on the tickers I'm about to mention, just to make sure that my humble words aren't making a lucrative difference to their market prices. That being said, I do intend to invest in these three names next week, when today's trading limits expire:
- Netflix (NASDAQ: NFLX) is already my largest holding, but it's also my best investment idea for new money at these ridiculously low prices. Market makers overreacted to a short-lived slowdown in subscriber additions, and Netflix hasn't been this affordable in years. I need to add to my position while the discount lasts.
- Design software expert Autodesk (NASDAQ: ADSK) has taken a 26% price cut in 2022 and a 40% plunge from November's all-time highs. The stock doesn't look cheap in terms of traditional valuation metrics, as it trades at 10 times trailing sales and 30 times free cash flow. However, that's a steal when you consider the company's unique market position at the crossroads of several long-term megatrends. I can't keep my hands off this growth stock with a 40-year operating history.
- Finally, I keep calling Polkadot (CRYPTO: DOT) the best crypto investment for the long haul, but my own position is puny. It's time to take this unique blockchain platform seriously, expanding my Polkadot exposure from a speculative bet to a meaningful investment. The DOT coin has fallen 29% this year and 60% from November's 52-week highs, and I expect multibagger returns in the long run.
A top fintech platform has been unfairly punished
Billy Duberstein (LendingClub): The market appears to have very rapidly priced in some sort of recession due to Federal Reserve rate hikes, which has punished certain lenders and fintech stocks like LendingClub (NYSE: LC). Remarkably, LendingClub is down some 67% from its 52-week highs set back in November -- and this is despite earnings results that have been quite good over the past couple of quarters.
The hate seems to have gone a bit too far, and doesn't incorporate the new facets of LendingClub's business model. The market has historically viewed LendingClub as a risky unproven fintech platform, which makes unsecured personal loans to U.S. consumers for bulk purchases or to refinance credit card balances. LendingClub had traditionally sold all loans to third-party investors, such as bank partners, money managers, or individual investors; one concern is that those investors might flee in a recession, in addition to underwriting concerns.
There are two big reasons that these issues are overemphasized in 2022. First, LendingClub has been at this game since 2006, before the Great Recession, and it's a cutting-edge user of data analytics and technology, including nontraditional metrics to supplement traditional credit scores. As of late last year, its pre-pandemic loans were experiencing 50% lower delinquency rates than those of other fintechs, and its delinquency rates were also lower than the industry's overall. Additionally, LendingClub has gravitated away from its roots as a higher-yield lender and has really concentrated on prime customers in recent years with more conservative underwriting.
Second, LendingClub is really a new company since it acquired Radius Bank in early 2021 and is now armed with a banking license. LendingClub's cost structure is down, and it's holding more of its loans on its own balance sheet -- between 15% and 25%, according to its new model. Loans held on the balance sheet are more profitable for LendingClub, and the "eating its own cooking" posture has also spurred high demand from third parties. Being less dependent on third-party funding is a huge advantage and takes away a big risk in the prior business model.
Following this year's sell-off, LendingClub is trading at just 12 times this year's earnings estimates. That's the kind of valuation normally reserved for much larger, mature banks without much growth. But LendingClub projects 34% to 47% revenue growth and 600% to 700% earnings growth this year; while some of that is a snapback from the pandemic, LendingClub seems to have much more growth ahead as it ramps up new customer acquisition for its bank and expands into new products, such as auto loan refinancing.
In fact, analysts expect LendingClub to grow earnings another 73% in 2023, and the stock only trades at less than 7 times those forward estimates.
While inflation is certainly hurting consumers today, the job market is strong and household balance sheets are still in good shape. I don't think a bad recession, in which charge-offs skyrocket, is likely. Recession fears and a flattening yield curve have caused LendingClub to sell off much too far, and that's why I scooped up more shares recently.
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Anders Bylund owns Netflix and Polkadot. Billy Duberstein owns Applied Materials, LendingClub, and Netflix and has the following options: short July 2022 $10 puts on LendingClub. His clients may own the companies or cryptocurrencies mentioned. Nicholas Rossolillo owns Applied Materials, Autodesk, Doximity, Polkadot, and Shopify. His clients may own the companies or cryptocurrencies mentioned.
The Motley Fool owns and recommends Autodesk, Doximity, Netflix, and Shopify. The Motley Fool recommends Applied Materials and recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.