The Nasdaq Composite index was briefly pushed below the 20%-off-peak threshold that marks bear-market territory, but a moderate rebound now has its level sitting down "only" 18% from its previous high mark. With the index still in correction and teetering on the edge of slipping back into bear territory, it's not hard to find growth-dependent stocks trading down more than 35% from recent highs.
Picking the right rebound plays could have a huge impact on your portfolio's long-term performance. With that in mind, read on to see why a panel of Motley Fool contributors identified Autodesk (ADSK 2.65%), Lucid Group (LCID +4.88%), and PubMatic (PUBM +4.88%) as top stocks to buy for investors looking to take advantage of recent sell-offs.
Image source: Getty Images.
The world's not about to go backward with its CAD software
James Brumley (Autodesk): I get why investors started to sell Autodesk in earnest in November, making it an even easier name to dump when things really started unravel early this year. The software company beat its third-quarter earnings estimates, but just barely. It then undermined any chance it had of coming out of the report unscathed by lowering its guidance for the quarter ending in January. Sure enough, those fourth-quarter results were anything but thrilling, at least relative to expectations.
Now down 38% from November's peak, though, I don't think it's a stretch to say the market's lost sight of the fact that this outfit is still putting up very impressive numbers.
NASDAQ: ADSK
Key Data Points
Autodesk is a software company. Its big claim to fame is computer-aided drafting (CAD) solutions for engineering and manufacturing outfits, but it's got products for the animation and entertainment industry as well. Given the strides -- particularly in 3D -- hardware and software have made in recent years, Autodesk is able to offer the kinds of platforms that were unthinkable not too long ago. Revenue growth reliably in the mid-teens is evidence of this marketability. Earnings are growing even faster, expected to swell from last year's $5.07 per share to $6.77 this year to a bottom line of $8.17 per share in 2023.
I really just think investors as a whole have forgotten Autodesk's software is essentially a must-have these days.
A high-risk, high-reward EV play
Daniel Foelber (Lucid Group): There's no shortage of high-risk, high-reward growth stocks that are down big off their highs. But one company that sticks out to me is Lucid Group. Lucid is down around 65% from its all-time high. In many ways, the sell-off was justified, as Lucid now expects to produce and deliver 12,000 to 14,000 Lucid Air electric sedans in 2022 compared to its prior estimate for 20,000 units. Lucid also pushed back plans to deliver its highly anticipated Gravity SUV from 2023 to the first half of 2024.
The electric vehicle (EV) company is spending more money than ever before and burning through cash at warp speed as it invests in growing its manufacturing capacity, showrooms and service centers, and research and development. The short-term outlook for Lucid is nothing short of bleak. But Lucid has a few key advantages that could help it win out over the long term.
Over 60% of Lucid Group stock is owned by the Saudi Arabia Private Investment fund (PIF). And as of this writing, there have been no disclosures since the PIF's Form 13F filing with the U.S. Securities and Exchange Commission (SEC) on Feb. 14 that indicate the fund has participated in the 2022 Lucid stock sell-off. In a Feb. 28 press release, Lucid announced it was building its second manufacturing plant in Saudi Arabia to bring it closer to potential customers. Lucid's relationship with Saudi Arabia is a unique stabilizing force that gives Lucid loyal financial backing and could make it a leading electric automaker in the Middle East.
Lucid also has some of the most advanced technology in the EV industry. The Lucid Air Dream Edition sedan has the highest voltage, longest range, and fastest charging of any electric sedan on the market today. The question for Lucid is whether it can scale production of lower-priced trims of the Lucid Air and successfully compete with a growing cohort of legacy automakers that are gunning for a slice of the EV pie. Lucid's aggressive spending leaves the company vulnerable to financial challenges if supply chain constraints persist for longer than expected. For that reason, Lucid stock is probably best held in a diversified basket with other EV stocks to eliminate the chance of a catastrophic loss in case Lucid's dreams fail to come true.
Time to buy this undervalued digital advertising player
Keith Noonan (PubMatic): While the digital advertising market's dependence on big tech platforms has been highlighted by changes Apple has made to data tracking on its mobile platform, the industry is still poised for strong growth over the long term. PubMatic provides a programmatic advertising platform that automates connections between publishers and buyers, paving the way for more efficient advertising targeting and campaign spending, and the stock could be a big winner for long-term investors.
The company's revenue climbed 35% year over year to reach $75.6 million in the fourth quarter, and that performance brought full year sales to $226.9 million -- up 53% annually. Even better, the company is already profitable, and non-GAAP (adjusted) net income surged roughly 118% last year to reach $64.7 million.
PubMatic's guidance for sales expansion of 17% in 2022 suggests a significant growth deceleration, but management's guidance has historically erred on the conservative side, and the business still seems to be in the early stages of tapping into its long-term expansion potential. The company estimates that it's currently capturing between 3% and 4% of its addressable market, but it expects that it will be able to reach market share above 20% over the long term.
Following the recent post-earnings sell-off and ongoing pressures depressing valuations for growth stocks, PubMatic is down roughly 38% across 2022's trading and roughly 69% from its lifetime high. The company is now valued at roughly $1.1 billion and trades at approximately 3.8 times this year's expected sales and 25 times this year's expected earnings. That's a valuation that leaves huge room for long-term upside, and I think investors who buy at current prices will see strong returns from the stock.
