In the wake of the beat-down the market has endured so far in 2022, deals abound. Many stocks have sold off hard even though the businesses themselves are doing more than fine. Times like these present long-term investors with opportunities to load up on quality names at a discount.
Three Fool.com contributors think Meta Platforms (META -0.52%), Criteo (CRTO 3.79%), and Crocs (CROX -0.52%) are worth serious looks right now.
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Buy this FAANG stock while it's down nearly 50%
Billy Duberstein (Meta Platforms): In a market full of tales of shocking declines, perhaps none is more shocking than Meta Platforms' fall from grace after its fourth-quarter report. After all, FAANG stocks aren't supposed to sink by 50%.
To be sure, the social media giant is going through some struggles right now. The user-tracking changes that Apple made to its iOS have dented Meta's ability to track people across the internet, which reduces Facebook's and Instagram's ad-targeting capabilities. Among its competitors, TikTok has come on particularly strong, going from zero to accounting for roughly 15% of social media engagement over the past few years. Oh, and Russia on March 14 banned Instagram within its borders, blocking 80 million users from the platform. (The Kremlin had already banned Facebook.)
Furthermore, Meta is already spending heavily to prepare for a tech future that probably won't generate meaningful revenues for years: the metaverse. In 2021, Meta laid out $10.2 billion on its metaverse projects, and that spending accelerated throughout the year. That's a big drag on the bottom line.
But as Warren Buffett once said, "you pay a high price for a cheery consensus." With Meta's current valuation at just 15 times earnings, the market seems to have factored all the fear and pessimism around these issues into the stock price already. Meta also has around $48 billion in cash on its balance sheet and still generates high margins despite its less-than-stellar growth and rising metaverse outlays. In fact, when you incorporate that extra cash and strip out the metaverse spending, the stock multiple is closer to 10 to 11 times earnings.
That seems to indicate that investors assume the core Facebook and Instagram platforms are in decline. But I would beg to differ. Research firm Zenith projects that overall social media advertising spending will grow at a mid-teens percentage rate annually between 2021 and 2024. While the space may be getting competitive, that certainly leaves Meta room to grow. Facebook is still generating lots of cash, and the company is repurchasing stock at its current low valuation, which also lends some support to the stock price.
Additionally, there are a lot of smart people at Meta working on better ad targeting and performance measurement. While it may not be able to get back to the level of targeting precision it achieved prior to Apple's move to enhance users' data privacy, I'd expect improvement on that front over time. (Also worth noting -- Alphabet announced in February that it planned to make similar anti-tracking changes to the Android mobile operating system.)
And of course, there is also the possibility that the metaverse could live up to the promise that Meta CEO Mark Zuckerberg sees in it. Based on the low valuation the stock is trading at, the market is pricing in almost no success on that front, so a win there would be a bonus.
With a low valuation, share buybacks, and the prospect of improvements in ad targeting as the year progresses, Meta looks like a top candidate for a big bounce back in the latter part of 2022.
This company doesn't belong in the "risky stocks" category
Anders Bylund (Criteo): Online advertising veteran Criteo is trading 40% below last summer's multiyear peak. It's kind of funny to see it being dragged down by the marketwide flight from risky stocks with lofty price tags and/or weak profits -- because the Paris-based company isn't any of those things.
Criteo is firmly profitable with adjusted earnings of $136 million and $166 million in free cash flows last year. The stock currently trades at the bargain-bin valuation of 10 times free cash flow, 8 times forward earnings, and 0.8 times trailing sales.
And if you call this a risky business, you and I have very different definitions of risk. The company recently changed up its business model, diversifying away from a stagnant ad retargeting service to tap into the promising markets of video advertising and AI-powered ad targeting.
It's true that its pending purchase of real-time ad targeting expert Iponweb has been put on hold by Russia's invasion of Ukraine. As a Moscow-based business, Iponweb is subject to the myriad business sanctions that other countries are enforcing against Russia, so the deal will probably not move forward until the conflict ends -- and the effects of the sanctions might linger long after that date. However, Criteo will do just fine with or without this $380 million acquisition.
So the stock looks incredibly cheap, and the business is as promising as ever. I think that's one way to spell "buying opportunity" in French.
Strange shoes for strange times
Nicholas Rossolillo (Crocs): This week, I'm giving Crocs a nod of approval. Yes, Crocs, the maker of the ugly foam clogs. Once upon a time, wearing these quirky shoes amounted to fashion suicide, and buying the stock at any point in the mid-2010s wasn't ideal either. After a boom immediately following the Great Recession of 2008 and 2009, Crocs lost its way for a while.
But a lot has changed in the pandemic era. Comfort and everyday practicality are the winning considerations now, and on those scores, Crocs' shoes seem to deliver the goods. They're even considered downright fashionable in some circles.
The footwear maker has put up some incredible financial numbers over the last two years, growing revenue by 57% in 2020 and 67% in 2021. And in spite of supply chain issues that have forced the company to dole out extra money for air freight to meet demand, its operating profit margin still increased to 30% last year. But after the stock surged by some 600% from the start of 2019 to late 2021, a cool-off was in order. Crocs stock is now down nearly 60% from its high-water mark.
Of course, the boom for Crocs' goofy footwear could be chalked up to the strange times brought on by the pandemic. But if management can keep it on track, this will remain a high-growth company for the next few years. Crocs sales are expected to increase at least another 20% in 2022 to about $2.8 billion, and the recently acquired HeyDudes casual footwear brand will contribute another $620 million to $670 million (HeyDudes is reportedly also growing at a double-digit percentage clip.) Crocs had previously stated it hopes to reach $5 billion in annual sales by 2026, not including revenues from HeyDudes.
The strategy for reaching these lofty ambitions focuses on expanding into new markets in Asia and connecting more effectively with younger consumers via e-commerce. Along the way, Crocs thinks it can maintain its high operating margins in the mid- to high-20% range. Trading at just 10 times trailing 12-month free cash flow, this shoe stock already looks cheap. If it can make good on its aspirations in the coming years, Crocs will look like an absolute steal of a deal at today's share prices.
