You may not realize it, but investors have witnessed history over the past two years. They've navigated their way through the quickest 30% drawdown in the benchmark S&P 500 on record (it took less than five weeks), and have reveled in the strongest bounce back of all time. The S&P 500 doubled from its pandemic lows in under 17 months.
However, stock market crashes, corrections, and sell-offs are a normal part of the investing cycle, and what can arguably be described as the price of admission to one of the greatest wealth creators on the planet. Since the year began, a number of U.S indexes have sold off. It's been especially noticeable for the tech-heavy Nasdaq Composite, which has declined by 8.3%, through Jan. 19.
While short-term market sell-offs can be unnerving, they're also a great opportunity to buy high-quality stocks at a discount. With the January sell-off well underway, the following four stocks are begging to be bought.
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Zoom Video Communications
With inflation soaring and the Federal Reserve expected to hike interest rate numerous times this year, growth stocks with high premiums have been heavily sold over the past 11 months. Cloud-based Web-conferencing company Zoom Video Communications (ZM 0.18%) is one such stock that's been clobbered, but now looks like a fantastic value.
The argument against buying shares of Zoom is that it's a beneficiary of the pandemic that'll see its growth fade once the pandemic winds down. While it is true that the company's blazing sales growth of 2020 wasn't repeatable in 2021, its industry-leading conferencing solutions are now embedded in everyday workflow. If and when the traditional work environment returns, Zoom's solutions are expected to continue playing a big role in keeping projects on track and facilitating meetings.
Zoom Video Communications has done a particularly enviable job of reaching small-and-medium-sized businesses. In the company's October-ended quarter, it had more than a half-million customers with 10 or more employees, and saw the number of subscribers contributing at least $100,000 in trailing-12-month revenue nearly double to 2,507 from the prior-year period.
As a result of the aggressive retracement in its share price, Zoom can now be purchased for around 10 times sales and 36 times Wall Street's consensus earnings forecast for fiscal 2023. With the company's price-to-earnings-growth ratio (PEG ratio) back below 2, it looks like a genuine bargain for patient investors.
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Western Digital
For you value stock investors, data storage solutions company Western Digital (WDC 0.41%) is begging to be bought during the January sell-off.
The key issue that pessimists will almost always touch on when it comes to Western Digital is the penchant for the data storage industry to oversupply the market when their pricing power improves. This fear of oversupply often places a low ceiling on forward-year price-to-earnings ratios.
However, Western Digital and its peers are highly unlikely to encounter these problems in 2022, and possibly even 2023, due to supply chain issues tied to the coronavirus pandemic. The end result for the industry should be strong pricing power and continued high demand.
The company has both short-and-long-term catalysts currently working its favor. The rollout of new gaming consoles in late 2020 has lifted demand for data storage in the short run. Meanwhile, businesses of all sizes shifting their data into the cloud represents a sustainable demand opportunity for Western Digital in data centers. By mid-decade, it wouldn't at all be surprising if the company's nimbler NAND flash solutions became commonplace in data centers.
Even taking into account the data storage industry's history of oversupplying devices when pricing power improves, a forward price-to-earnings ratio of less than 7 is too inexpensive for Western Digital.
Image source: Getty Images.
NextEra Energy
Another no-brainer stock that's begging to be bought is leading electric utility NextEra Energy (NEE -0.82%).
After watching growth stocks skyrocket for more than a decade, the idea of buying an electric utility stock probably sounds boring. The thing is, NextEra isn't like your average utility company. It's generated a positive total return for its shareholders in 19 of the past 20 years, and galloped higher by more than 1,000%, including dividends paid, since the Great Recession bottom in March 2009. That's a better return than a lot of high-growth tech stocks.
NextEra's secret sauce is its focus on renewable energy. No electric utility in the country comes close to generating as much capacity as NextEra does from solar and wind projects. And with the company spending up to an aggregate of $55 billion between 2020 and 2022 on new infrastructure projects, it's unlikely to be dethroned as America's green-energy leader anytime soon.
Even though renewable energy projects are costly, NextEra has been able to finance them at historically low lending rates. What's more, lower electricity generation costs have helped lift its compound annual earnings growth rate to the high single digits for more than a decade. This compares to a low single digit growth rate for the utility sector.
With a long history of profits in its sails, NextEra is a fantastic buy on any significant pullback.
Image source: Block.
Block
Lastly, fintech stock Block (SQ -0.49%), the company formerly known as Square, is begging to bought during the January sell-off.
Similar to Zoom, Block has been obliterated recently as Wall Street weighs the company's growth prospects and valuation premium in a rising-rate environment. But as financial services increasingly shift to digital platforms, Wall Street is going to realize that Block is worth every bit the premium it's been bestowed.
For over a decade, Block has relied on its seller ecosystem to be its foundational operating segment. This is the segment that provides everything from point-of-sale solutions to loans and analytics to businesses. In 2012, $6.5 billion in gross payment volume (GPV) was registered via the seller ecosystem. But based on the $41.7 billion in GPV recorded in the third quarter of 2021, Block is pacing an annual run-rate of closer to $167 billion in GPV.
Best of all, a lot of the company's GPV growth is now originating from larger businesses with at least $125,000 in annualized GPV. Since the seller ecosystem is predominantly dependent on merchant fees, bigger business should help Block become more profitable.
Looking ahead, it's all about digital peer-to-peer payment platform Cash App, which saw its monthly active user count more than quintuple to 36 million in the three-year period ended Dec. 31, 2020. According to Block, the average monthly transacting user on Cash App is generating $55 in gross profit, which compares to only around $5 in costs to attract each new user. Cash App is Block's golden ticket to sustainably fast growth and delectable margins.
