Market corrections are inevitable. They're a normal part of the market's long-term life cycle, where overheated markets and securities get to cool down a bit. Without them, many stocks would be persistently overvalued, leaving very little hope of buying low so you can sell high.
That's why I don't mind it when high-quality companies have their share prices decimated for no good reason. It's always worth checking whether the business or its operating environment has changed in any meaningful way, and it's a good idea to respect any warning flags found in this step. But with a clean bill of health, I'm thrilled to see my favorite stocks trading at a discount.
The short-term concerns that created a bargain will eventually fade, allowing great businesses to prove their real worth and generate generous heaps of shareholder value. That's why I'm excited to see top-notch companies like Atlassian (TEAM -0.85%), Netflix (NFLX 0.52%), and Fiverr International (FVRR -3.96%) sporting generous discounts after January's sell-off. Picking up a few shares of these fantastic stocks today should serve you well in the long run.
Image source: Getty Images.
Fiverr will be fine as the world goes back to "normal"
As a marketplace where freelancers connect with people and companies who need their services, Fiverr had a lot to gain from the lockdowns and economic struggles of the early pandemic. Annual sales rose by 77% in 2020, while share prices surged more than 700% higher.
Many investors have viewed Fiverr as a pure play on the COVID-19 economy, sure to run out of steam when the coronavirus crisis is over. Furthermore, the company is not profitable, since it invests every penny or surplus capital into projects supporting and boosting its top-line growth. Everything is scaling up at a tremendous pace, from employee headcounts and marketing budgets to service offerings and non-U.S. sales. Fiverr boosted its roster of active freelance service buyers by 33% year over year in November's third-quarter report and each buyer is spending an average of 20% more on the Fiverr platform.
So the growth story clearly continues, even at a time where coronavirus vaccines are widely deployed and millions of people are going back to the workplace. The available supply of Fiverr-based freelancers continues to grow anyway, and so does the demand for these workers.
At the same time, market makers grew lost much of their faith in unprofitable growth stocks in recent months. Fiverr shares have lost 71% of their value in the past six months, including a 35% drop in January alone.
I think that's a huge mistake. Fiverr is proving that it can continue to prosper with or without the assistance of a global pandemic. Picking up Fiverr stock from Wall Street's bargain bin today should set you up for multibagger returns over the next decade -- just for starters.
Every team needs what Atlassian is selling
The company behind team project management tools Jira and Trello is another undervalued growth stock with fantastic business prospects. In last week's second-quarter report, sales rose 37% year over year. Atlassian also added more than 10,000 net new customers during the quarter for a grand total of 226,500 names. This company is even profitable on an adjusted basis, and non-GAAP earnings also increased by 28% year over year.
Investors were quick to embrace this stellar report and Atlassian's stock rose 9.7% the next day. However, share prices are still down by 29% in three months and 16% in January, despite that sudden jolt of energy.
You know the drill. Atlassian is a well-run business that addresses a truly massive global market, since basically every company on the planet could use a full-featured project management solution. Like Fiverr, Atlassian's business and stock price surged in the darkest days of the pandemic. Also like Fiverr, this company's long-term growth story has only just begun.
Image source: Getty Images.
Netflix's growth engine has lots of gas left in the tank
Everybody knows what Netflix does, and the digital video market is going through an explosive growth spurt on a global scale as we speak.
Yes, I know that Netflix sees a slight slowdown coming up in the ongoing quarter. Furthermore, the bears out there can't stand the idea of just 2.5 million net new accounts during this period. That's why Netflix shares fell 30% in January, with a 22% single-day plunge after that gruesome earnings report.
Except, it really wasn't gruesome. To me, the soft first-quarter guidance looks more like a temporary speed bump. There's fresh video-streaming competition in every market, but consumers have always had tons of other ways to spend their spare time instead of watching Netflix. The largest of these rival entertainment options would be linear television solutions such as cable, satellite, and broadcast stations.
Streaming services still hold a minority slice of the time people spend on video content, and I expect Netflix to remain a worldwide leader as this market expands into its final form. This switch may take another decade or more. But streaming media offers a better user experience and a stronger economic model with ultra-low content distribution costs. It's the production of new shows and films that can be costly -- no matter what your viewing platform looks like.
There's no stopping this sea change, and Netflix co-CEO Ted Sarandos agrees.
"That's absolutely happening, and it's happening all over the world. The pace of the migration may be a little hard to call from time to time when there are kind of varied global events or even local conditions, but it's absolutely happening," Sarandos said on the fourth-quarter earnings call. "Films that you love and series that you define yourself by and games that thrill you, that's a pretty great business. We're thrilled to be in it. We're also planning to continue to improve what we're doing and to grow this by growing revenue, by growing profits and by growing audience affinity around the world."
Once again, the long-term growth story is as robust and inspiring as ever, but Netflix's stock is on fire sale. That's a massive buying opportunity in my book.
