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3 Beaten-Down Stocks in 2022 to Buy Now

By Jennifer Saibil, John Ballard, and Parkev Tatevosian, CFA – Updated Feb 22, 2022 at 5:01PM

Key Points

  • Starbucks continues to lead its industry and still has massive growth opportunities.
  • Supply chain disruptions hurt Roku's profits, but the headwind is likely short-term.
  • Buying shares of this growing athletic apparel brand should pay off in 10 years.

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This might be your chance to buy before prices rise.

It can be uncomfortable to watch your investments lose value when the market is volatile, especially if you're new at this. Experienced investors know that it's part of the process, and when prices dip, it can be a great buying opportunity. For example, the S&P 500 lost nearly 40% of its value in 2008 after the crash, but it's climbed almost 400% since those lows.

Sometimes it's best to close your eyes and open them again in a few years. But if you keep your eyes open, you can find some great deals. We asked three Motley Fool contributors for their best beaten-down stocks to buy now, and they came up with Starbucks (SBUX 1.62%), Roku (ROKU 1.59%), and Lululemon Athletica (LULU 1.09%).

A group of people wearing fitness clothing and high fiving.

Image source: Getty Images.

An unmatched lead in its industry

Jennifer Saibil (Starbucks): Starbucks flexed its muscle at the beginning of the pandemic, taking action to serve its customers under lockdowns. It still posted sales declines, but it stayed afloat, and with its recovery is now well positioned to keep its dominant spot as the coffee shop king.

In the 2022 first fiscal quarter (ended Jan. 2), sales increased 19% year over year to $8.1 billion, matching the 2021 fourth quarter's record result. Earnings per share increased 30% year over year to $0.69, which is still below pre-pandemic levels, but takes into account higher costs related to the pandemic and inflation.

Demand was particularly strong in the U.S., where revenue increased 23% year over year. The loyalty program powered some of that growth, reaching upward of 26 million 90-day active members. The new program, launched last year, has new features and benefits that make it easier to use, especially in combination with the company's digital options. Starbucks made heavy investments in omnichannel ordering as the pandemic began, and it now offers mobile ordering in most areas, in addition to more drive-thru stores. These were crucial over the past two years, but they're also investments in the future. They will continue to play a large role in sales generation as customers shift toward digital. 

Management is planning to reach 55,000 stores by 2030, which could make Starbucks the largest restaurant chain in the world. It made progress toward that goal in the first quarter, opening almost 500 net new stores for more than 34,000 global stores, about half of which are in the U.S. In addition to comparable sales increases, which Starbucks typically boasts, this store count increase means Starbucks' revenue should keep increasing for many years.

But even though Starbucks has demonstrated a strong rebound and robust growth opportunities, its stock price is down 10% over one year and 20% in 2022. The company is dealing with inflation and supply chain issues, which could cause damage in 2022. Shareholders may be concerned, but new investors can buy shares on the dip and look forward to long-term gains.

Short-term headwinds have Roku selling at a discount

Parkev Tatevosian (Roku): Roku stock is having a challenging year so far in 2022. As of this writing, shares of the connected TV facilitator are down 50% year to date. The primary cause of its demise is the ongoing effects of the coronavirus pandemic.

Supply chains worldwide are disrupted as fewer people are willing to work while a potentially deadly virus is in circulation. Outbreaks and quarantine requirements reduce the labor force further still. The shortages are raising prices on materials and the cost to transport goods.

Roku has decided to absorb those costs rather than pass them along to consumers. The result has been three consecutive quarters of gross profit losses in its player segment: $6.7 million in the second quarter, $14.6 million in the third quarter, and $45.9 million in the fourth quarter of 2021. Why is management willing to sell these players at a loss? Because it funnels customers to its highly profitable platform segment where it earned a gross profit of $425.6 million on revenue of $703.6 million in its most recent quarter, ended Dec. 31, 2021.

After falling by half this year, Roku is trading at a price-to-sales ratio of 6. That's near the lowest it has sold for, dating back to 2018. Meanwhile, the company has more than doubled its active accounts since then.

Admittedly, investing in Roku might be a harrowing experience in the near term as it grapples with supply chain shortages. However, the longer run could be rewarding. Consumers have chosen streaming content over linear TV. That trend is unlikely to reverse as streaming is more convenient and often less expensive than linear TV. For investors who can stomach the short-term volatility, Roku is an excellent stock to buy and hold for the long term.

An emerging juggernaut in sportswear

John Ballard (Lululemon Athletica): Lululemon opened its first apparel store in Vancouver, Canada, in 1998. It now operates 552 stores across North America, Europe, and China, with plenty of geographic expansion left to pursue over the next few decades. 

The brand has successfully expanded beyond athletic apparel to styles for everyday occasions. Revenue over the last five years has more than doubled to $5.8 billion, and Lululemon plans to launch its first footwear line this year, which should pad the top line further.

However, Lululemon is facing some near-term speed bumps with supply chain issues. The share price is currently down 36% off its recent highs. In January, management said that holiday quarter revenue would come in at the lower end of previous guidance. It blamed capacity constraints and reduced staff availability due to the omicron variant. 

Buying shares of growing companies when they are down can lead to great returns down the road. Lululemon will get through the near-term obstacles and grow to be a larger and more valuable business in 10 years than it is today. For investors who can tolerate the near-term market volatility, this top retail stock would make a great addition to a well-rounded portfolio during the market sell-off.

Parkev Tatevosian owns Roku and Starbucks. The Motley Fool owns and recommends Lululemon Athletica, Roku, and Starbucks. The Motley Fool recommends the following options: short January 2022 $115 calls on Starbucks. The Motley Fool has a disclosure policy.

Stocks Mentioned

Starbucks Stock Quote
Starbucks
SBUX
$105.05 (1.62%) $1.68
Lululemon Athletica Stock Quote
Lululemon Athletica
LULU
$385.99 (1.09%) $4.17
Roku Stock Quote
Roku
ROKU
$60.73 (1.59%) $0.95

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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