September 28, 2023

Brad Marolf

Business & Finance Wonders

10 Stocks I’ve Bought During the Market Sell-Off

The past couple of months have been a reminder to new and tenured investors that stock market corrections are a normal part of the investing cycle and the price of admission to one of the world’s greatest wealth creators.

All three major U.S. indexes began last week decisively in correction territory. The benchmark S&P 500 and iconic Dow Jones Industrial Average were both lower by more than 10%, while the growth-centric Nasdaq Composite was officially in a bear market (a decline of at least 20%).

Image source: Getty Images.

While big moves lower in the stock market can be scary — especially when they occur in such a short time frame — they’re the ideal time to put your money to work. After all, every notable stock market decline throughout history has eventually been put into the rearview mirror by a bull market rally.

Over the past six weeks, I’ve used the market sell-off as an opportunity to buy the following 10 stocks.

1. Meta Platforms

It’s not often that industry leaders go on sale, but when they do, I like to pounce. That’s why I’ve nibbled on shares of Meta Platforms ( FB 1.02% ) five separate times since its earnings announcement. Meta has been a continuous holding for me since the pandemic crash in March 2020.

While I understand the short-term concerns Wall Street has about increased spending on metaverse-related projects, it’s tough to look past the company’s overwhelming social media scale. By the end of 2021, 3.59 billion monthly active people were visiting a Meta-owned social site, such as Facebook, Instagram, WhatsApp, or Facebook Messenger. That’s more than half of the world’s adult population and all the more reason for advertisers to pay a premium to get their message in front of users.

Meta also generated $57.7 billion in operating cash flow last year on its predominantly ad-driven model. The company has more than enough room to invest in new ideas, with $33.6 billion in net cash. In other words, Meta at less than 17 times forecast earnings this year is a bargain.

A person typing on a laptop, with a small dog sitting on their lap.

Image source: Getty Images.

2. Bark

I’m a big fan of pet stocks and the pet industry in general. That’s why I made two more buys of dog-focused products and services company Bark ( BARK 0.00% ) since mid-February.

How’s this for a stat: It’s been more than a quarter of a century since year-over-year spending on companion animals has declined. No matter how steep recessions get, pet owners willingly open their wallets for their furry friends.

What makes Bark so intriguing is the company’s e-commerce leanings. In the most recent quarter, 84% of sales were direct-to-consumer (DTC), with the remainder coming from in-store sales. Although it’s struck a few brand-name in-door partnerships, the beauty of Bark’s sales approach is that DTC helps to reduce overhead expenses. The end result is a gross margin that’s pretty consistently stayed between 55% and 60%.

With Bark continuing to pile on subscribers (2.3 million as of third-quarter 2022), I’m excited about its future.

A person using a tablet to conduct a virtual visit with a physician.

Image source: Getty Images.

3. Teladoc Health

Over the past week and change, I’ve also taken the opportunity to add to my position in leading telehealth platform Teladoc Health ( TDOC -3.86% ).

The ultimate pandemic play has screamed to a three-year low on the heels of wider-than-anticipated losses following its Livongo Health acquisition. The good news is a lot of the one-time expenses tied to this deal won’t recur in 2022 or beyond. This should allow Teladoc’s subscriber growth to shine once again.

What continues to be overlooked is how integral virtual visits are to the future of healthcare in the U.S. (and likely globally). Although not every appointment can be handled virtually, telehealth is more convenient for patients, can help physicians keep better tabs on chronically ill patients, and should result in improved patient outcomes that reduce insurer costs.

Make no mistake about it: This is a long-term play. But with Teladoc able to cross-sell its solutions with Livongo, I foresee sustainable annual sales growth of 20% to 25% throughout the decade.

A person using a tablet to peruse a pinned board on Pinterest.

Image source: Pinterest.

4. Pinterest

Another beaten-down pandemic play that I’ve added to twice since late February is social media platform Pinterest ( PINS -3.23% ).

Most skeptics appear to be worried about Pinterest’s declining monthly active user (MAU) count or Apple‘s iOS privacy changes. Neither issue concerns me.

Despite a nine-month decline in MAUs, the company’s average revenue per user (ARPU) rose 36% globally and 80% internationally. ARPU growth like this clearly shows that advertisers are willing to pay up to get their message in front of Pinterest’s users. As long as the company is effectively monetizing its users, I’m not going to worry too much about a temporary MAU decline.

Additionally, the entire premise of Pinterest is for users to share the things, places, and services that interest them. Apple’s privacy changes won’t be an issue thanks to Pinterest’s users allowing advertisers to perfectly target their interests.

An engineer plugging wires into the back of a data center server tower.

Image source: Getty Images.

5. Fastly

Though it’s a bit more of a dart-throw than the other nine stocks I bought during the market sell-off, I added to my small but existing position in edge cloud company Fastly ( FSLY -5.23% ).

Fastly has taken it on the chin due to slowing growth forecasts and wider-than-anticipated losses. Shares of the company declined as much as 90% from their all-time high in less than 18 months.

But in spite of its recent underperformance, I remain intrigued. In particular, Fastly still managed to increase its total customer count to north of 2,800 in 2021 from less than 2,400 in the previous year (including the Signal Sciences acquisition). Further, its dollar-based net expansion rate came in at 121% in the fourth quarter. If existing clients are spending 21% more than they did last year, Fastly must be doing something right.

My thesis remains unchanged that as businesses shuffle more data online and into the cloud, Fastly will be leaned on to a greater degree to get content to end-users quickly and securely.

A physician administering a vaccine into the upper-right arm of an elderly patient.

Image source: Getty Images.

6. Novavax

Yet another existing position I’ve added to is biotech stock Novavax ( NVAX -8.99% ).

Novavax’s claim to fame is its COVID-19 vaccine, NVX-CoV2373. In three large-scale clinical trials, NVX-CoV2373 produced an 89.7% and 90.4% vaccine efficacy (VE) in adults and an 82% VE in teens aged 12 to 17. The latter trial was conducted when the delta variant was most common. The point being that Novavax should benefit immensely from initial inoculations and booster shots due to the mutability of the SARS-CoV-2 virus that causes COVID-19.

Something else often overlooked is Novavax’s ability to develop combination vaccines. Though the company trailed bigger pharma names in bringing a COVID-19 vaccine to market, Novavax could be a leader in bringing combo influenza/COVID-19 shots to pharmacy shelves.

I figure the company to be a bargain at less than four times Wall Street’s consensus earnings for 2022.

A hacker wearing black gloves who's typing on a keyboard in a dark room.

Image source: Getty Images.

7. Ping Identity Holdings

A brand-new stock I added during the market sell-off is cybersecurity company Ping Identity Holdings ( PING 0.00% ).

Ping Identity doesn’t get anywhere near the same accolade as other cybersecurity stocks due to its generally slower growth rate. With its clients choosing shorter-term subscription licenses during the early stages of the pandemic, it was hit harder than most security plays.

However, I bought in for two key reasons. First, the company’s annual recurring revenue, which measures its high-margin subscription sales expected over the coming 12 months, has pretty consistently grown by a mid-teens percentage. It’s only a matter of time before revenue growth pops as well.

What’s more, the company’s subscription software-as-a-service (SaaS) revenue has been growing considerably faster (up 56% in Q4 2021 and 51% for the full year). As SaaS ramps into a larger percentage of total sales, revenue growth and profitability should quickly ramp up.

Employees using tablets and computers to analyze business metrics during a meeting.

Image source: Getty Images.

8. PubMatic

Cloud-based programmatic ad-technology company PubMatic ( PUBM -2.21% ) is also new to my portfolio. I’ve bought shares on three separate occasions over the past two weeks.

The buzz surrounding PubMatic has to do with advertising shifting away from print and moving to a variety of digital platforms, such as mobile, video, and connected TV. According to the company, global digital ad spend could nearly double by 2025 to $627 billion.

But PubMatic has been growing even faster. Last year, the company generated 49% organic growth from its clients (i.e., the publishers whose display space PubMatic fills). There’s no reason PubMatic can’t maintain annual sales growth of around 25% through at least mid-decade. That’s incredibly impressive for a company valued at 25 times Wall Street’s forward-year consensus earnings.

Additionally, because PubMatic built its own infrastructure, it’s beginning to reap the rewards of scaling efficiencies. Operating expenses dipped below 50% of revenue in 2021, with gross margin lifting to 74%.

An up-close view of a flowering cannabis plant in a commercial indoor cultivation farm.

Image source: Getty Images.

9. Planet 13 Holdings

Marijuana stock Planet 13 Holdings ( PLNH.F -7.04% ) is a new addition to my portfolio as of one week ago today. Though I own stakes in a handful of small-cap multi-state operators (MSOs), it’s without question the most unique.

Instead of setting up dispensaries in as many legalized markets as possible, Planet 13 only operates two dispensaries at the moment. They are, however, massive: The 112,000-square-foot Las Vegas SuperStore in Nevada and 55,000-square-foot Orange County SuperStore in California. Aside from an unparalleled selection, these stores provide an experience to customers and cannabis enthusiasts that no other dispensary can offer.

The company has also benefited from a number of smart decisions. Examples include the incorporation of self-pay kiosks for repeat customers, the rollout of high-margin proprietary derivatives, and giving customers access to personalized budtenders.

My expectation is for Planet 13 to become profitable on a recurring basis in 2022.

A couple making a contactless payment with their smartphone while seated at a cafe.

Image source: Getty Images.

10. PayPal

Last but certainly not least, I added to my existing position in fintech stock PayPal ( PYPL -1.97% ) four separate times during the market sell-off.

Similar to Meta, this looks to be a case of an industry leader getting irrationally piled on following a weaker-than-expected (but not awful) earnings report. Total payment volume on the platform is still expected to grow by roughly 20% in 2022.

The company is also a cash cow. It generated $6.3 billion in operating cash flow and $5.4 billion in free cash flow last year alone. With close to $10 billion already in its coffers, the company’s moneymaking business model allows it to take chances. A good example being the $2.7 billion acquisition of Japan’s buy now, pay later service platform Paidy last year.

At less than 20 times Wall Street’s earnings consensus for 2023, PayPal looks like an absolute steal.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.