In January the stock market has smacked stocks of all sizes, types and quality across the board. Multiples have been slashed. High-growth stocks have been hit the most because they tend to have the highest multiples.
It's a great time to add cash to the market, and one of the smartest ways to approach this is to simply add to your highest confidence positions. The stocks that have been historical big winners for you, and are down significantly in 2022. For me, those names are Shopify (SHOP 0.14%), Novavax (NVAX), and Sea (SE 1.20%).
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Shopify -- down 50% from its highs
Shares of the e-commerce superstar traded at $1,762 back in November. You can get those same shares for half-price now. The key to success in the stock market is to buy the finest stocks in the land, and hold those stocks for years, if not decades. Shopify has been a magnificent stock to own even with the recent dramatic pullback.
Look how much it's crushed the market! Over the last five years, owners of the S&P 500 -- an index fund that tracks 500 of the largest American companies -- returned 95% to its investors, almost a double. Meanwhile, Shopify shareholders have had a 1,450% return over that time span. A couple of months ago, we were bragging about a 3,000% return.
That 50% haircut is a wonderful opportunity to grab some shares. Winning stocks are expensive. Usually you have to pay top dollar to get shares of Shopify. To get this kind of discount is highly unusual.
What we're seeing is a crushing of multiples (the price you pay) across the market, not bad news for any particular stock. This is a macro event, hitting high-growth stocks across the board. Shopify's price-to-earnings ratio is 32 now. That means the stock is trading at 32 times earnings. To give you a sense of how cheap this is, the stock was trading at 700 times earnings a year ago.
Shopify has 81% profit margins. It's the dominant tech stock for anybody who wants to engage in internet commerce. Amazon (NASDAQ:AMZN) tried to compete with Shopify many years ago and gave up. If you think internet commerce has a future, this is the stock for you.
Novavax -- 70% off its highs
Novavax was arguably the finest stock in the market in 2020, as the tiny vaccine specialist ran up almost 3,000% in the face of COVID-19. And the stock continued to win in 2021 (at first), hitting its high of $330 a year ago, after the company reported positive phase 3 data for its COVID-19 vaccine candidate. I'm a happy owner of this biotech, as my family started buying shares in the single digits in late 2019 and early 2020.
One of the hardest things you can do as an investor is hold on to your magnificent winners. Here at the Motley Fool, we preach the buy-and-hold gospel. But if you listen close, you might hear a chorus in the background ("sell a slice, sell a slice, after the 60-bagger"). Back in the 20th century, I witnessed David Gardner and Jeff Fischer sell a slice of America Online in order to buy shares of that internet start-up, Amazon. And boy are we all glad they did that!
So in 2020, my family sold a slice of Novavax at $113. Later that year, we sold another slice for a charitable contribution. And then, when the price hit $315 in early 2021, we sold another slice (profit-taking). We've kept about 60% of our original shares.
Now that we're seeing a 70% discount in the stock price, we've added to our big winner Novavax this week. And we bought back the three slices we sold (at cheaper prices).
Why am I so bullish on Novavax? Well, I know why the stock was whacked. The company has been struggling with manufacturing issues all year. Those issues have been resolved, which is why Novavax has already been authorized to sell its COVID vaccine abroad (we're still waiting to get that authorization in the U.S.). And, unlike the market, I do not think that COVID-19 is yesterday's news. I think this virus will continue to mutate, and people will vaccinate for many years to come -- particularly when Novavax's flu/COVID combo shot arrives. And I can confidently predict that Novavax will make billions this year, because its vaccine has been pre-sold to governments around the world. So this 70% discount is exciting for my family, and we added to our winner.
Sea -- 60% drop-off in price
One of my family's big stock winners is that Sea monster in Singapore. Sea was founded by Forrest Li, a Stanford grad who was in the audience when Steve Jobs gave his famous Commencement Address. Li took Jobs' words to heart. In fact he played the video of that speech over and over. When he founded his company, he wanted to "connect the dots" in South East Asia, a reference to a group of countries in the region refer to as "S.E.A." That region includes Singapore, Taiwan, Thailand, Vietnam, Malaysia, the Philippines, and Indonesia. That's a population that's bigger than North America.
Li's willingness to reach across borders gave his company a massive opportunity in the region. Li focused first on video games. He ignored the large platforms of Sony (NYSE:SONY) and Microsoft (NASDAQ:MSFT) and focused entirely on the smartphone market. His company created a huge hit with its "free" game, Free Fire. I put "free" in quotation marks because it's free to play, but you pay to win. That's why Free Fire, one of the most popular games in the world, made over $1 billion in 2021.
The popularity of Free Fire has allowed Sea to expand around the world, to places like Brazil, Mexico, India, and Poland. But what's even more exciting is that this Sea monster has three heads. While it's the video games that open up doors in foreign markets, Sea follows up with its e-commerce site, Shopee, as well as its money transfer unit, Sea Money.
An investment in Sea is an investment in gaming on your smart phone, internet commerce, and internet payments. This is my favorite foreign investment. My family hasn't sold any of this one. We bought at $30, at $104, and added more at $313. This 60% discount you're seeing right now is a steal.
