3 stocks that could soar at the start of the next bull market

The 2022 bear market has hit growth stocks particularly hard. Large indexes like the S&P500 (currently down about 18% from all-time highs in late December 2021) mask severe pain. Some tech stocks are down 50% or more.

Some of these companies may never recover, but others are high-quality outfits that were thrown away for no real reason. Buying now could pave the way for incredible investment returns once this bear market gives way to the next bull. Three Fool.com contributors think Amazon (AMZN -1.77%), AMD (AMD -3.28%)and Sea Limited (SE -7.28%) are stocks that could skyrocket once the clouds start to clear. Here’s why.

This long-term winner looks extremely cheap right now

Anders Bylund (Amazon): E-commerce and cloud computing titan Amazon soared at the start of the COVID-19 pandemic, but the stock hit a brick wall in 2022. Amazon shares are trading at over 30 % below their 52-week highs, roughly double the correction seen in the S&P 500 market index.

The abrupt discount makes sense at first glance. April’s first-quarter report fell short of Wall Street expectations. Amazon’s investment in an electric car maker Rivian Automotive has been expensive and disappointing so far. Additionally, the company’s second-quarter guidance points to the weakest year-over-year revenue growth in Amazon’s history. So I understand if some investors aren’t comfortable with Amazon’s $1.3 trillion market cap.

However, the company is struggling to rejuvenate its lagging growth trajectory, and some of the slowdown was artificial in the first place.

The Prime Day sales event dropped in the second quarter of 2021 but moved into the third quarter this year, making the second quarter annualized comparison much more difficult. In contrast, the third quarter will benefit from the same timing shift and Amazon’s next set of guidance targets should look quite bullish.

Additionally, the timeline outpaces the growing availability of COVID-19 vaccines in mid-2021, which has inspired many shoppers to visit local stores instead of their favorite e-commerce portals. This effect has never been under Amazon’s control.

At the same time, the company continues to post strong business results in virtually all market environments, despite the decline in share price. As a result, Amazon shares are trading at one of the lowest enterprise value to earnings before interest, tax, depreciation and amortization (EBITDA) ratios in 20 years. The same goes for Amazon’s price-to-earnings ratio.

This business is built to last. Amazon’s growth story is expected to pick up in the second half of 2022 as year-over-year comparisons become less difficult. When the stock market recovers from its current inflationary pressure, Amazon shares look spring for a strong rally. And even if the rebound is a bit slower, Amazon is the type of stock you want to own for the long term anyway. The company’s diverse exposure to cloud computing, digital media and logistics services can make the good times last even when the e-commerce business trades a few speed bumps.

Long story short, I believe Amazon shares belong in nearly every long-term investor’s portfolio, and the current low stock price should be viewed as a buying opportunity.

A transformational merger that the market ignores

Nicholas Rossolillo (AMD): Former chip design underdog AMD has come a long way in the past decade (stocks are up nearly 2,000% in the last 10 years), and it looks better positioned than ever for the next decade. The company’s processors for data centers and other high-performance computing applications are in high demand (EPYC chip sales increased 88% year-over-year in Q1 2022). And on the consumer PC front, AMD isn’t as widely used anymore. He designs good things and has plenty of room to keep “tinkering” Inteladvance in terms of market share.

In a further bet on its leading silicon portfolio, AMD completed its merger with Xilinx earlier this year – one of the largest mergers and acquisitions ever in the tech sector. Xilinx will help broaden AMD’s exposure to its fastest growing enterprise computing end markets, as well as help AMD innovate in areas such as automotive, aerospace and defense.

The best part of Xilinx, however, is that it will increase AMD’s profit margins. CEO Lisa Su said growth for the full year 2022 (including the addition of Xilinx) is expected to increase 60% from 2021. Add higher profit margins, which means earnings per share is on about to grow at an even faster rate. However, with many investors wary of a significant slowdown in economic growth (or even a recession), semiconductor stocks were punished. AMD is down 46% from its all-time high.

The shares are currently trading for 33 times trailing 12-month earnings, but trading for 20 times analysts’ estimates for full-year 2022 earnings – a valuation that appears to ignore the possibility that AMD’s bottom line will top well its projected revenue growth rate of 60%. That makes AMD a buy in my book. Once some of the bearish outlook hitting most chip stocks this year begins to fade, AMD could regain momentum.

Sea Limited should emerge from this slowdown on a stronger footing

Billy Duberstein (Sea Limited): Given its major franchises in mobile games, e-commerce and fintech, Sea Limited has the ability to tackle a large portion of the gross domestic product of Southeast Asia and Latin America . Of course, these three diverse segments are all consumer-facing businesses, so they would need the economy to pick up to really benefit. This is why Sea Limited would be a beneficiary once we get past the current economic downturn.

Make no mistake, Sea’s second quarter and 2022 could suffer from several headwinds, and I’d be cautious heading into the next second quarter earnings report. The post-pandemic hangover has already manifested itself in its lackluster 2022 gaming revenue forecast, while rising food and oil prices could cause consumers in the region to retreat from discretionary items. It could also slow the hypergrowth of Sea’s Shopee e-commerce platform from its robust growth rates last year. Meanwhile, a recession could hurt SeaMoney, the high-growth fintech platform Sea is building that is nonetheless subject to underwriting risks.

Still, Sea should be able to get through this period. The company was savvy enough to raise $6 billion in September last year, through the sale of low-rate convertible notes, as well as the sale of shares when its share price was $318. , more than four times the current price. This strengthened Sea’s cash position, giving it the ability to grow without worrying about raising funds for the next few years. It’s a great luxury to have, and it should help it expand its leadership position in the e-commerce and fintech market in Southeast Asia and Brazil against more cash-strapped competitors. silver.

While Sea lost $580 million in net income in the last quarter alone, management vowed to achieve positive adjusted EBITDA before head office costs in its Southeast Asia e-commerce operations by the end of this year, as well as achieving cash flow breakeven in its SeaMoney fintech segment next year. Management also wisely pulled out of highly competitive, loss-making markets like India and France last year, as these markets had a longer payback period. All of these indications show that management “gets it” and is pivoting properly to profitability after years of hypergrowth.

The current focus on earnings is appropriate and should put Sea Limited on a stronger footing once we get through these tough economic times. Once capital markets stabilize and we get through a recession or fears of a recession, Sea’s growth should resume, likely from an even better competitive position.

With its tentacles in so many categories and geographies across Asia and Latin America, Sea’s growth potential seems limitless, as long as the consumer economy in these regions remains strong. This is why I am cautious in the short term but optimistic in the long term on this security, once the new bull market begins.

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