An Incoming Bull Market: Growth Stocks Down 76%, 77% to Buy Before 2023 | Motley Fool
Hyperinflation and rising interest rates threaten to dampen corporate revenue growth and profitability, so many investors responded by exiting the stock market. As a result, the Standard & Poor’s 500 and the NASDAQ Composite This year, it has fallen sharply, and has fallen into a bear market.
It may sound counterintuitive, but the economic uncertainty has really created a buying opportunity for impatient investors. Many stocks full of potential have seen their valuations plummet on near-term concerns. For example, shares PayPal Holdings (PYPL -0.73%) And the Cloud Flair (Clear -3.10%) 76% and 77%, respectively. But both stocks are well positioned to bounce back during the next bull market, and the bull market has inevitably followed every bear market in the past.
Here’s what investors should know.
1. PayPal: New partnerships with Apple and Amazon
PayPal is the most accepted digital wallet in North America and Europe, and ranked as the most downloaded digital wallet globally during the first half of 2022. This success stems in large part from its two-sided network. Unlike traditional payment processors, PayPal provides financial services to both merchants and consumers, which means it has built trust on both sides of the transaction, driving a flywheel effect that powers its business.
Thanks to this feature, PayPal understands consumer spending habits better than most payment processors, and uses this data to prevent fraud, mitigate risk, and increase sales for merchants. In fact, CEO Dan Schulman recently told investors, “People are twice as likely to shop when there’s a PayPal button. With huge network effects, we’re eight times bigger than the next wallet button on the market.”
Despite the challenging macroeconomic environment, PayPal reported reasonably strong results in the third quarter. Revenue rose 11% to $6.8 billion and GAAP operating margin improved to 16.3%, its highest level in the past four quarters. On the bottom line, GAAP earnings rose 26% to $1.15 per diluted share.
Looking ahead, shareholders have reason to believe PayPal can accelerate growth as economic conditions improve. The company values its addressable market at $110 trillion, and recent partnerships with apple And the Amazon It can help them gain market share in the coming years.
In 2023, US consumers will be able to add PayPal and Venmo-branded cards to their Apple Wallets and use them anywhere Apple Pay is accepted. This could help PayPal gain share in physical retail, as Apple Pay is the most popular mobile payment platform in store by a significant margin. Similarly, US consumers can now pay with Venmo on Amazon. This could help PayPal gain a stake in digital retail, since Amazon is easily the largest e-commerce company in the US
These catalysts should send the stock price higher when the next bull market spins. Meanwhile, shares are currently trading at 3.2 times sales, which is very reasonable compared to a three-year average of 9.2 times sales. Investors should jump on this buying opportunity before it is lost.
2. Cloudflare: Five-fold revenue growth in the next five years
Cloudflare makes the internet faster and more secure. Its global cloud platform improves the performance and security of company software and infrastructure while freeing customers from the prohibitive burden of maintaining their network hardware. Cloudflare also provides developer tools that help companies build and deploy apps, websites, and video streaming experiences, and has recently added data warehousing solutions to its portfolio to enhance its developer platform.
Cloudflare benefits from massive scale. Its network shares a direct connection with every major enterprise, public cloud, and ISP, allowing it to deliver content to 95% of Internet users worldwide within 50 milliseconds. This makes Cloudflare the fastest network in the world, and this feature has generated huge demand. In fact, Cloudflare is the market leader in content delivery network software and edge development platforms.
It is not surprising that the company is growing at such a rapid pace. Its customer count has increased by 18% to 156,000 over the past year, and the average customer has spent 24% more, showing the stability of its platform. As a result, third-quarter revenue increased 47% to $254 million, and the company reported a positive cash profit from operations of $43 million, up from a loss of $7 million in the same period last year.
Moving forward, Cloudflare has only scratched the surface of its $115 billion market opportunity, and the company is well positioned to create value for patient shareholders. Cloudflare had an annual revenue run rate of $1 billion in the third quarter, and management says that number will grow fivefold to $5 billion by 2027. That means annual revenue growth of 38% over the next five years. This type of growth should lead to a significant rebound during the next bull market.
Meanwhile, the shares are currently trading at 18.4 times sales, which is a bargain compared to a three-year average of 41.7 times sales. This is why investors should buy this growth stock.
John Mackey, CEO of Whole Foods Market, an Amazon company, is on the board of directors of The Motley Fool’s. Trevor Jennewine holds positions at Amazon.com and PayPal. The Motley Fool has positions at and recommends Amazon.com, Apple, Cloudflare, and PayPal. The Motley Fool recommends the following options: March 2023 long calls of $120 on Apple and March 2023 short calls of $130 on Apple. The Motley Fool has a disclosure policy.
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