After looking like it was about to plunge into correction territory, the S&P 500 has pared its losses for the new year by almost half after notching several days of gains. It's still quite likely that a stock market crash will happen sooner rather than later, as there have been 27 separate times since the end of World War II when the benchmark index has plunged 10% or more.
Even though 80% of corrections do not turn into bear markets, according to data from the Schwab Center for Financial Research, it's always good to prepare for a collapse.
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But some stocks are already in the midst of their own bear markets, having tumbled by more than 20%, and the year is only just a month old. I've argued elsewhere that a market correction is not to be feared, and in fact should be celebrated, because one of the benefits a downturn brings is that good stocks become cheap, giving savvy investors a chance to swoop in and pick up shares at a discount.
The four stocks below are the biggest losers in the S&P 500 in 2022, so it's worth considering whether they are buys. Now, not every stock that craters is worth purchasing, as sometimes there could be something amiss in their operations that warrants the lower valuation. So with this quartet down between 28% and 33% from where they started the year, let's see if these index miscreants are opportunities -- or if you should stay away.
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Etsy (down 28.3%)
Etsy (ETSY 1.07%) was a high-flying stock during the pandemic, particularly during the early days of the COVID outbreak when everyone wanted to know where to buy a face mask since they were in short supply. CEO Josh Silverman told Fortune at the time that traffic to the site spiked, with people specifically searching for "face masks" -- searches for the term hit nine per second.
You might think, with the urgency surrounding the pandemic having died down for most people, business would have slowed down for Etsy. Not so. The handcrafted and artistic goods e-commerce platform continues to post higher revenue, and is still adding more users each quarter. At the end of the third quarter, Etsy reported that gross merchandise sales (GMS) jumped 18% over last year, and were more than 2.5 times greater than the same period in 2019.
As Silverman noted in relation to Etsy's strong first-quarter results, "Last year the world took notice of Etsy's highly differentiated value proposition, and that incredible momentum has continued."
So why is Etsy's stock down? It seems mostly related to a sector rotation by the market transitioning away from previous high-flying tech stocks and those companies that benefited from the pandemic. Etsy ticked both those boxes, but its business remains strong and growing. It looks like a good candidate to pick up at a significant discount.
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EPAM Systems (down 28.8%)
IT consultant EPAM Systems (EPAM 0.57%) is also mostly a victim of the stock market shunning growth tech stocks. It got socked by the pandemic as business slowed to a crawl because customers were leery about spending any money during lockdowns, but last year business turned up again with a vengeance.
Revenue was up 53% in the third quarter, almost breaching the $1 billion threshold, and the company is on track to post $1.1 billion in sales in the fourth quarter. Efficiency is critical for companies now, and EPAM helps businesses identify problems and create and implement solutions. Its deep pool of 47,000 engineers, designers, and consultants helps optimize business processes.
It has potential for even more growth, as analysts at IDC estimate enterprises will spend $6.5 trillion dollars on digital transformation initiatives over the next two years. The biggest risk facing EPA Systems seems to be if a recession hit, as it could cause companies to rein in their IT expenditures once again. Still, that would be just another short-term hiccup, and investors should have a much longer outlook for their investments. That makes EPAM's stock look like a good value.
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Netflix (down 29.1%)
Yet another stock hammered by the world moving further away from the pandemic, Netflix (NFLX -1.66%) was already trending lower since November. But the bottom fell out of its stock when the movie streamer reported fourth-quarter earnings.
Netflix fell short not only of analyst expectations for new subscriber additions, but its own guidance as well, and then warned it won't be adding many in the first quarter either. Profits also plunged 34% from the year-ago period. It was hardly the stellar performance the market had come to expect from the streaming service, but there's an argument to be made that the beating the stock took was a bit excessive.
Netflix is actually still growing. It now has 222 million subscribers, and it just imposed a new price increase in North America to help offset the slowing growth in this very mature market. International markets still offer enormous potential for bigger gains.
The streamer isn't the only one slowing down after a monstrous period of expansion during the lockdown portion of the pandemic. Disney (NYSE: DIS) also took a hit after Disney+ growth underwhelmed Wall Street.
As the leading streaming service, and one that's still growing and still has a lot of potential overseas, Netflix ought to be considered a buy at this new lower price.
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Moderna (down 33.3%)
Hey, what do you know? Another pandemic favorite now down on its luck. Moderna (MRNA 0.33%) needs no introduction, as there's a chance you've been stuck by its vaccine for COVID-19, and maybe its booster shot, too. And both it and fellow vaccine maker Pfizer (NYSE: PFE) want to convince you an annual booster may be needed, too.
Should that become a reality, Moderna will be set for a steady flow of revenue. Its vaccine just got full authorization from the Food & Drug Administration, which eases concerns some held about a vaccine that was only brought to market under emergency-use authorization.
While the influx of cash and profits has been the result of its vaccine, the proceeds will help Moderna finance its pipeline of other drug candidates and develop its mRNA technology to apply to other possible breakthroughs.
Moderna stock is not only cheap price-wise, but across numerous metrics too. It trades at just 10 times trailing earnings, 6 times next year's estimates, at a fraction of its sales, and at only 5 times the free cash flow it produces. A biotech can be volatile, and just because one drug succeeded doesn't mean others will -- but its stock looks like a buy at these prices.
