Short-term drops in the market can feel brutal -- even for those keeping a long-term focus.
Owning a tech-heavy portfolio that has dropped over 25%, I am no exception. However, by dollar-cost averaging, holding for the long term, and reframing sell-offs as opportunities, it is possible to remain optimistic when facing a correction.
Speaking to this third point, let us look at three heavily sold-off stocks that offer the potential to set you up for life.
Image source: Getty Images.
Driven by its mission "to help people discover the things they love, and inspire them to do those things in their daily lives," idea-incubator Pinterest (PINS 3.85%) puts a twist on social media.
In a world facing mental health concerns related to social media usage, Pinterest flips the script by providing hope and inspiration -- even if it's only on an aspirational level.
Perhaps thanks to this unique connection to its user base, the company saw its share price reach a high of almost $89 in 2021.
However, after reaching that high mark, Pinterest saw its monthly active users (MAUs) drop from 478 million in the first quarter of 2021 to 431 million at the end of the year. This drop, paired with PayPal's abandoned acquisition for around $70 per share, has sent the stock down 70% from its peak.
So what makes Pinterest interesting now?
First, the fears around this MAU decline seem overstated, considering it grew from 367 million in 2019 to 459 million the following year thanks to a pandemic-aided surge. Its subsequent decline in 2021 was far from surprising in hindsight as most of the world reopened, temporarily setting apps like Pinterest on the back burner.
Second, despite this pullback in MAUs, its global average revenue per user (ARPU) of $1.93 continues to shine. Up 23% year over year in the fourth quarter, this metric strengthened with a growing ARPU of $7.43 domestically and an international ARPU that was up 62% to $0.57. As Pinterest continues to roll out its shoppable content and advertising base internationally, look for its massive user base to become increasingly profitable to the company.
Finally, according to Comparably, Pinterest has a Net Promoter Score (NPS) of +50. NPS is rated on a scale of -100 to +100 and captures whether a company's customers would recommend the product. Generally, a positive score is good, while anything above +30 is excellent, making Pinterest's score stand out.
Best yet for investors, businesses with excellent NPS scores tend to outperform the market thanks to happier customers. As a result of this NPS score, its remaining international growth runway, and a meager price to free cash flow ratio of just 23, buying and holding Pinterest at these prices could move your retirement years ahead of schedule.
Zoom Video Communications
Like Pinterest, Zoom Video Communications (ZM 1.28%) boasts an excellent NPS of +53 thanks to its suite of hybrid work-enabling products. Famous for its video conferencing software that has become a verb, Zoom is creating new products, its most recent being the Zoom Contact Center.
This new offering will act as a customer engagement solution for Zoom's clients and highlights the somewhat quiet growth optionality hidden behind the company's core video product. Whether it's the Zoom phone, events, meetings, or rooms, and now its contact center, the company's unified communications platform is poised to evolve to meet the needs of its ever-expanding customer base.
However, with decelerating growth rates that saw revenue increase only 21% in the fiscal 2022 fourth quarter -- compared to growth of 369% the same time last year -- Zoom has seen its stock punished.
Now 70% below its 52-week highs, the market is pricing Zoom like it faces an existential crisis, but that couldn't be further from the truth. After generating $1.5 billion in free cash flow (FCF) over the last year, Zoom now trades at just 25 times FCF.
Data by YCharts.
Any time a company's price to free cash flow ratio approaches its sales growth rate as is the case here, it catches my attention as reasonably priced growth.
Zoom's promising NPS, product optionality, and cheap FCF generation make it a prime sell-off stock to consider holding forever.
DocuSign
Rounding out our trio of high NPS stocks is DocuSign (DOCU 0.23%) and its excellent score of +53. Led by its popular e-signature product, the company now has its eyes on expanding its broader Agreement Cloud offering.
This Agreement Cloud consists of four key pillars: prepare, sign, act, and manage. As e-signature is by far DocuSign's most prominent product, it intends to use a land-and-expand business model to grow its sales.
After getting its foot in the door with nearly 1.2 million customers thanks to its e-signature product, it now aims to build upon these relationships by offering anything and everything related to the agreement space.
However, with DocuSign seeing its billings growth drop from 56% in fiscal 2021 to 37% in fiscal 2022, the market has sent the stock's price downward.
It has also declined nearly 70% from its 52-week high, but this reaction from the market is starting to look overdone. Despite this slowdown in billings growth, DocuSign still posted 45% revenue growth last year and a good net dollar retention rate of 119% in the latest quarter.
Net dollar retention measures how much DocuSign's existing customers grew their spending with anything above 100% showing expansion. As time passes, this metric will be vital to investors as it will highlight how the Agreement Cloud's growth is faring.
Trading at 44 times free cash flow, DocuSign is the most expensive stock of this trio -- and the fastest growing. However, with its growth rate above its price to free cash flow, the stock still looks attractively priced after its sell-off and could be an excellent holding for long-term investors.
