The Nasdaq Composite index is now down roughly 14.5% across this year's trading and 17.5% from its peak, and investors have had no shortage of risk factors to consider lately. High inflation, looming interest rate hikes, flaring international tensions, and underwhelming business performance from some ultra-high-profile companies have all contributed to a significant shift in market sentiment.
Investors are generally becoming more risk averse, and that highlights the importance of putting your money behind top companies that are poised to thrive over the long term. While the broader market has recently seen dramatic sell-offs, the bearish momentum has also created some big opportunities. Read on to see why a panel of Motley Fool contributors identified Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), and Airbnb (NASDAQ: ABNB) as top stocks to buy right now.
Throwing the baby out with the bathwater
James Brumley (Amazon): I completely understand how panicked investors can decide to sell first and ask questions later. That's likely what has upended Amazon of late. But when the crowd makes this mistake, it's still an opportunity you can capitalize on.
Shares of the e-commerce giant are down roughly 16% year to date, leading the Nasdaq's bearish charge. And it's not like this stock was overly ripe for profit-taking here. Amazon shares ended 2021 right around where they were as of late 2020. Investors just fell out of love with it, possibly presuming its best-case scenario had already been priced in by 2020's big move higher. Now the stock's nearly cut that 2020 gain in half, suggesting even the venerable king of e-commerce is headed into a headwind.
Yes, it's unlikely we'll ever see a year like 2020 again. Amazon was the go-to shopping solution in the midst of the pandemic. Most of those new customers seem to have stuck around, but they're not exactly buying more stuff. Lost in the discussion, however, is that Amazon Web Services has already eclipsed the profitability of its online shopping business, yet is still in its early stages. Within a matter of years, Amazon is on pace to be a cloud computing company that also does e-commerce. The market isn't pricing this in, in light of the stock's recent sell-off.
This of course is the sort of bigger-picture thinking investors should always be doing, keeping them ever-ready for buying opportunities.
The content king isn't going away anytime soon
Daniel Foelber (Netflix): When good businesses go on sale, it's usually a good time to buy. Share prices of Netflix stock have been taken to the woodshed and then some. Down 40% year to date as of Wednesday's close, Netflix is now barely up over the last three years, a period where the Nasdaq and the S&P 500, even after their recent pullbacks, have put up monster gains.
As Netflix and the subscription home entertainment business have expanded over the years, the market has grown accustomed to valuing Netflix not for its financial metrics, but for its subscriber growth. The red flag is that Netflix expects to add just 2.5 million subscribers in the first quarter of 2022. For reference, it added 18.2 million subscribers in 2021, for an average of 4.55 million per quarter.
A slowdown in subscriber growth, paired with negative free cash flow in 2021, undermines Netflix's record 2021 revenue and net income.
A few years ago, Netflix was considered a hyper-growth stock with a nosebleed valuation. Today, its growth is slowing, but its price-to-earnings ratio is now just 34.6. That's the lowest it has been in five years.
Netflix stock's decline is making it a much more attractive option for folks who want to invest in digital streaming at a reasonable price. Competition in the industry is more saturated than ever before, but Netflix remains the undisputed industry leader in the space -- a position it is unlikely to give up anytime soon.
Book a ticket to the travel industry's recovery
Keith Noonan (Airbnb): Growth stocks have gotten off to a rocky start in 2022, and I think Airbnb stands out as one of the most promising names caught up in the big pullback. The stock now trades down 17% year to date and 35% from its high, and patient investors can bank wins by taking advantage of the discount.
While macroeconomic headwinds and pandemic-related challenges continue to be sources of uncertainty for the travel leader, it looks like many parts of the world are moving closer to a state of normalcy. Markets including the U.K., Ireland, the Netherlands, and Denmark have recently reduced pandemic-related restrictions, and it looks like more countries could soon follow suit.
Even if the outlook on that front takes another turn for the worse due to the emergence of a new coronavirus variant or other adverse developments, Airbnb is coming off stellar third-quarter results that point to pent-up demand and market share gains for the business. Revenue was up nearly 70% year over year in the third quarter and 36% compared to the company's pre-pandemic quarter in 2019. Meanwhile, net income was up 213% compared to Q3 2019 and 280% year over year.
Airbnb is a growth-dependent stock in a market that has recently become much more risk averse. The potential for additional pandemic and macroeconomic challenges could create some additional volatility, but there's a good chance that long-term investors will enjoy impressive performance from the stock at current prices.
Appetite for growth-dependent stocks is waning at a time when the outlook for the travel and hospitality industry may be on the verge of improving substantially, and Airbnb stock is a strong buy on the heels of recent pricing pullbacks.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Foelber has no position in any of the stocks mentioned. James Brumley has no position in any of the stocks mentioned. Keith Noonan owns Airbnb, Inc. The Motley Fool owns and recommends Airbnb, Inc., Amazon, and Netflix. 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.