The S&P 500 has fallen more than 7% this year and is coming off its worst month since the start of the pandemic. Although it may seem like a scary time to be investing in stocks, now may actually be an opportune time to do so. Some businesses look downright unstoppable, and investing in them at reduced valuations may be a great long-term decision.
Two stocks I would put in that category today are Veeva Systems (VEEV 0.17%) and Starbucks (SBUX 1.09%). Both of these growth stocks are down 9% or more in 2022, but here's why that could be a good thing for investors.
1. Veeva Systems
Veeva helps companies, particularly in the healthcare industry, digitize their operations and push more of their activities to the cloud. At a time when remote work is on the rise and companies are looking to be more flexible due to the global pandemic, betting on digitization is a sound strategy.
That's been clear from Veeva's strong growth numbers. For the period ended Oct. 31, 2021, its revenue rose 26% year over year to $476.1 million. The company's CFO Brent Bowman noted that those numbers exceeded Veeva's guidance. For the last quarter of its fiscal year, which ended on Jan. 31, the company expects revenue could continue to rise to $480 million. That would put its top line at well over $1.84 billion for the full year, which would also be up 26% from the $1.47 billion Veeva reported in fiscal 2021.
The one knock on Veeva is that the stock isn't cheap. It trades at a forward price-to-earnings multiple of 58. That's well above the average healthcare stock in the Health Care Select Sector SPDR Fund, which trades at less than 16 times its future profits. This is still down from previous months when investors were paying much higher multiples for Veeva's stock. The stock is inching closer to its 52-week low of $212.49.
VEEV P/E Ratio (Forward) data by YCharts
Given its fast-growing business, that premium could continue to shrink in the years ahead as Veeva continues to deliver stronger results. The company is helping to transform the healthcare industry and make it more tech-savvy, so the opportunities that lay ahead for Veeva may very well justify its premium.
Image source: Getty Images.
2. Starbucks
Another business that has significant growth potential is Starbucks. The company's market cap of over $100 billion is three times the size of Veeva's, so investors may be skeptical about how much bigger Starbucks can get. But in its latest results for the period ended Jan. 2, that's just what the company has been achieving -- growth.
Quarterly sales rose 19% year over year to $8.1 billion overall while comparable store sales in North America grew at a rate of 18%. The company's operating profit of $1.18 billion was a solid 14.6% of revenue. Starbucks also reported that its rewards membership count in the U.S. grew 21% to 26.4 million members as of the end of the quarter.
One of the reasons I'm most bullish on the stock is Starbucks' focus on leaner, smaller stores that can improve margins. The company has been focusing on creating stores centered around convenience. This includes having only pickup options available where seating isn't available.
In November of last year, it also announced the launch of a new store concept where a Starbucks Pickup location was combined with Amazon Go, a cashierless market where consumers can just scan to enter, take what they want, and leave without a checkout process. The store was launched in New York and also includes a lounge where people can stay as they normally would in a more traditional Starbucks location.
The key here is that Starbucks is focusing on ways to innovate and create opportunities, whether by focusing on efficiency and reducing store sizes or partnering with a tech giant like Amazon. Both could lead to stronger numbers for the business and are examples of why Starbucks looks to be an unstoppable investment as it continues to look for ways to improve and strengthen its operations.
