Backing the right growth stocks can greatly speed up your journey to reaching financial independence. Consider that a $10,000 investment in Amazon made 10 years ago would now be worth roughly $187,000, while that same principal investment in Netflix stock would be worth roughly $593,000 based on today's prices.
Recent market volatility has pushed valuations for some potentially explosive growth stocks lower, and now could be an opportune time to add promising companies to your portfolio. Read on to see why a panel of Motley Fool contributors identified The Walt Disney Company (DIS -1.81%), Booking Holdings (BKNG -1.17%), and PubMatic (PUBM -3.47%) as stocks primed to deliver strong performance in 2022 and beyond.
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When Disney faces short-term challenges, it's usually a great time to buy
Daniel Foelber (Walt Disney): Disney's transition from a value and income stock to a growth stock hasn't gone as smoothly as it probably hoped. In fiscal year 2020, the company reported its first unprofitable year in more than 40 years as studio entertainment and park earnings tanked. Ongoing limitations due to the COVID-19 pandemic, not to mention new virus strains like delta and now omicron, have taken a toll on the company's ability to get its business back to the roaring trajectory it was on pre-pandemic.
As bad as things look today, it's hard to imagine a future where Disney doesn't grow. Investors initially cheered the advent of Disney+ as a bright spot in an otherwise bleak outlook. It was even enough to help Disney stock outperform the S&P 500 in 2020. But now, all the attention is on the Disney+ subscriber growth rate, which has come in below Wall Street expectations.
When talking about an international icon like Disney, it could be best to focus less on its short-term financials and turn your attention instead to the business overall. To me, the simple question is whether Disney's parks and movie businesses will top its 2019 record performance sometime within the next three to five years. If the answer is yes, then Disney's non-Disney+ business deserves to be worth what Disney was valued at in 2019, which was roughly between $110 a share and $150 a share.
Next, add in the value of Disney+, which currently has more than half the subscribers of Netflix, and the potential starts to become clearer. Disney reported Disney+ subscribers of 118.1 million at the end of fiscal year 2021 but expects paid subscribers to be between 230 million and 260 million by fiscal year 2024 (more than Netflix has now). That same year, it expects Disney+ to be profitable. In this vein, it isn't hard to imagine a world where Disney stock doubles from where it is today in three to five years. For that reason, Disney is my top stock to buy for 2022.
Omicron will eventually pass as well
James Brumley (Booking Holdings): Just when it looked like the world was easing back toward pre-pandemic norms, WHAM! The omicron variant of COVID-19 surfaces and rattles the world. Travel stocks suffered their steepest single-day sell-off since March of last year back on Nov. 26, and haven't exactly come roaring back in the meantime. New travel restrictions aimed at curbing the spread of the new coronavirus variant haven't helped.
I think, however, investors are pricing in more worry than is merited.
While the current COVID vaccines weren't explicitly designed to treat omicron infections, they are proving effective against it. New pill-based treatments are likely to become available soon as well. Then there's the arguably bigger matter: Pandemic-fatigued consumers don't exactly care as much about the risk of becoming ill as they did a year ago. The evidence? This year's Thanksgiving travel this year was back to about 95% of levels seen in 2019 -- before the pandemic even got going -- according to AAA, while the Transportation Security Industry says domestic air travel hit nearly 80% of levels seen around 2019's Thanksgiving holiday.
Simply put, leisure travel was on the mend before omicron, and I've got a feeling it's going to recover faster and better than many people expect.
There are a bunch of ways to play this quick recovery, but a beaten-down Booking Holdings is my pick of the litter, so to speak. It's got a hand in nearly every aspect of the travel business, and helps all the industry's service providers be more competitive in an increasingly competitive environment.
This fast-growing digital ads specialist looks cheap
Keith Noonan (PubMatic): Digital advertising has already changed the world and helped lay the foundation for much of the modern internet, but the industry is still primed for huge growth over the long term. PubMatic provides a machine-learning powered platform that helps ad buyers and publishers get the most for their money, and I think its stock stands out as one of the best all-around buys for growth-focused investors right now.
Not only does PubMatic have some promising long-term growth tailwinds at its back, the company is also already profitable and growing at a rate that makes the stock look quite cheap at current valuation levels. The digital ads specialist grew its revenue 54% year over year in the third quarter to hit $58.1 million, and net income surged roughly 118% compared to the prior-year period to reach $13.5 million. The company's net dollar-based retention rate for the period came in at 157%, which means customers already using the platform increased their spending 57% compared to the prior-year period.
PubMatic stock posted some strong gains following the company's much better-than-expected third-quarter earnings, but it's given up some of that pricing progress amid sell-offs that have roiled growth dependent tech stocks. The company now has a market capitalization of roughly $1.8 billion and is valued at approximately 41 times this year's expected earnings and 7.8 times expected sales.
PubMatic is now down roughly 55.5% from the high that it hit earlier this year, and I think there's a very good chance that investors who back the stock for the long haul will go on to enjoy stellar returns.
