It hasn't been a great year so far for growth stocks. After massive valuation spikes and general macroeconomic upheaval, investors have been shifting their money into value stocks. That's leaving many excellent stocks on the table, withering in value even as they manage effective businesses and offer high potential for reward.
The tide will turn at some point, and that spells opportunity for forward-thinking investors. If you focus on the long term, you'll find great investing options that offer a low entry point, making the potential for gains even greater. We asked three Motley Fool contributors for their top choices, and Walt Disney (DIS 0.18%), fuboTV (FUBO -3.50%), and Netflix (NFLX -3.92%) made the cut. They're all down over the past year, and smart investors will take the chance to buy on the dip.
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Disney: Down 20% over one year
Jennifer Saibil (Disney): Disney's business has been ping-ponging back and forth since the pandemic started, a big departure from its more typical solid performance as the biggest entertainment company in the world. When parks were closed, Disney+ carried the company through, then parks rebounded and streaming slowed down. In the latest numbers, the 2022 fiscal first quarter (ended Jan. 1) demonstrated good news all around, and this might just be the end of the tunnel for investors.
In the 2021 fourth quarter, investors were disappointed in the light subscriber additions for Disney+. At the time, management wasn't worried, and reassured investors that it was on track for subscriber additions over time, although each quarter wouldn't be symmetrical. Disney regained investor confidence when that became true in the first quarter, and Disney+ added 11.7 million more subscribers than last quarter.
But that's just the beginning of Disney's amazing performance in the first quarter. It posted record total revenue of $21.8 billion, a 34% year-over-year increase. Earnings per share (EPS) from continuing operations came in at $0.63, up from $0.02 last year. EPS (excluding certain items) of $1.06 was up from $0.32 last year and beat average analyst expectations of $0.74.
"This marks the final year of The Walt Disney Company's first century, and performance like this coupled with our unmatched collection of assets and platforms, creative capabilities, and unique place in the culture give me great confidence we will continue to define entertainment for the next 100 years," CEO Bob Chapek said. With its unmatched content creation machines, parks, products, and more, investors should expect that as well.
Disney's price did rise on the beat, but it's still down over the past year, giving you the opportunity to get shares of this entertainment giant for a great price.
fuboTV: Down 77% over one year
Parkev Tatevosian (fuboTV): fuboTV is a sports-centric streaming alternative to live TV. The company benefits from the trend of consumers preferring to stream their content. That tailwind is unlikely to reverse as streaming offers convenience and, most of the time, lower costs. Not to mention folks can enjoy a streaming live TV service anywhere they get an internet connection with a mobile device, a feature not possible with a cable TV connection.
fuboTV's revenue is snowballing. Indeed, in its most recently reported quarter, ended Sept. 30, 2021, fuboTV's revenue increased by 156% from the same quarter in the year before. It grew subscribers by 108% in that same time. In January, the company announced preliminary results for its fourth quarter, and again delivered robust growth in revenue and subscriber figures. Interestingly, fuboTV is not the only streaming alternative to live TV, but it outperforms its competitors. According to Nielsen, from the third quarter of 2020 to Q3 2021, when fuboTV grew subscribers by 108%, the rest of its industry grew by just 34%.
The results highlight that consumers gravitate toward fuboTV's sports-centric option, which makes sense. One of the primary reasons folks stick with live TV services is sports. So far, that's an excellent sign for fuboTV and its shareholders. And with an estimated 73 million households still on traditional pay-TV subscriptions in the U.S., fuboTV has plenty of runway for growth.
That's all well and good, but why is the stock down 77% in the past year? To put it simply, it costs more for fuboTV to serve its subscribers than it gets back in revenue. The company lost $106 million on the bottom line in Q3 on $156.7 million in revenue. As you might imagine, that business model is not sustainable, and something needs to change. Either fuboTV needs to charge more for its service, which could slow subscriber growth, or it needs to lower its expenses. Investors who take a chance on management's ability to figure this out stand to reap significant gains.
Netflix: Down 29% over one year
John Ballard (Netflix): Netflix shares are 42% off recent highs, which presents a rare opportunity to buy this leading streamer on sale. Investors can blame slowing subscriber growth, which came in at 8.9% year over year in the fourth quarter. That is down from the 20%-plus rates we saw through 2020. But as sometimes happens, the market is taking an ultra-short-term view on this disruptive entertainment platform.
Global broadband and smart TV penetration are still growing around the world. But investors are underestimating how far into the future Netflix can add new subscribers. One analyst estimates that Netflix can hit 500 million subscribers by 2030, which would still be a small fraction of the global internet population of more than 5 billion.
Management's strategy to continue investing in content while guiding the business toward positive free cash flow beyond 2022 should drive shareholder returns. One near-term release that could change the market's mind is season four of Stranger Things coming this summer. By the time Netflix dumps more content from its delayed production schedule over the next year, Netflix stock could look very undervalued at these lows.
