It's been a rough start to the new year for Wall Street and investors. Both the 125-year-old Dow Jones Industrial Average and widely followed S&P 500 corrected more than 10% from their all-time closing highs during the first quarter. Meanwhile, the tech-focused Nasdaq Composite continued a retracement that began in November and culminated in a 22% peak decline by mid-March.
This market decline has been equally pronounced in the Nasdaq 100 -- an index comprised of the 100 largest nonfinancial companies listed on the Nasdaq exchange. Like the Nasdaq Composite, the predominantly growth stock-powered Nasdaq 100 briefly dove into bear market territory last month.
But where there's short-term pain, there's often opportunity for investors. The following three Nasdaq 100 stocks have all pulled back from their highs and can be confidently bought hand over fist in April.
Skeptics have had two big issues with Meta since the beginning of the year. First, they're concerned about the company's beefed-up spending on metaverse initiatives. Higher spending, coupled with losses from Reality Labs (the company's metaverse segment), could constrain earnings growth in the short term. The other issue is Apple's iOS privacy changes, which may reduce data-tracking opportunities for ad-driven businesses. While these are tangible worries, they're extremely shortsighted and fail to account for Meta's clear-cut competitive advantages.
Even though we've been hearing seemingly nothing but metaverse chatter for the past six months, don't overlook that Meta controls four of the most popular social media assets in the world: Facebook, Facebook Messenger, WhatsApp, and Instagram. During the fourth quarter, 3.59 billion people visited a Meta-owned asset each month, which is more than half the world's adult population.
Even if some users opt out of data tracking, advertisers are well aware that Meta's social media assets give them the best chance to get their message in front of as many users as possible. This is why Meta enjoyed a 24% year-over-year increase in ad pricing in 2021, despite only a 10% improvement in ad impressions.
Meta is also taking a lot of heat for losing $10.2 billion on Reality Labs last year. But keep in mind that its family of apps generated almost $57 billion in operating income from advertisements. With over $33 billion in net cash and a wildly profitable advertising business, Meta has more than enough capital to lay the groundwork for what could be the next-big-thing investment. Even if it takes years for the metaverse to find its legs, Meta is assuring itself a key role in the next iteration of the internet.
Despite Wall Street and investors paying an average of 29 times earnings to own shares of Meta Platforms over the past five years, you can scoop up shares right now for about 15 times forecast earnings for 2023. It's the cheapest this company has ever been on a fundamental basis since going public in 2012.
A second Nasdaq 100 stock to buy hand over fist in April is a company near and dear to my heart: Starbucks (SBUX 1.71%). Shares of the popular coffee chain have retraced 28% since hitting an all-time high last July.
If you're wondering why Wall Street and investors have soured on Starbucks in recent months, look no further than inflation and COVID-19. Historically high levels of domestic inflation, coupled with tight labor markets and store closures, have pressured Starbucks from a cost perspective. Sprinkle in the potential for some of its stores to unionize, and we have a recipe for a short-term overreaction from the investment community.
What I'd encourage investors to focus on with Starbucks is the company's loyal customer base and how innovation is driving double-digit growth potential.
Peruse any study on customer loyalty and you'll regularly find that Starbucks is at or near the top among food and beverage chains. The company's rewards program has been a big hit that's driven repeat business and increased spending among its most loyal shoppers. As of Jan. 2, 2022, Starbucks had 26.4 million active Rewards members, which was up 21% from the prior-year period, and is substantially higher than where membership stood prior to the pandemic. Not only does this program reward customers for their loyalty, but it encourages them to try new products and add on to existing purchases.
In terms of innovation, Starbucks has been shifting its operating model to focus on convenience -- especially when it comes to drive-thru orders. Redesigns of the drive-thru ordering board now offer pairing suggestions of popular food and beverage items, and allow drive-thru associates to interact with customers via live video. These touches have helped increase engagement and should have a positive effect on increasing average ticket size.
It's been roughly four years since investors have had the opportunity to buy shares of Starbucks for less than 25 times Wall Street's forecast earnings for the upcoming year. Given this company's cult-like following, innovation, and history of outperformance, it looks like a no-brainer buy at 23 times Wall Street's earnings forecast for 2023.
The third and final Nasdaq 100 stock that can confidently be bought hand over fist in April is surgically assisted robotic system developer Intuitive Surgical (ISRG 1.27%).
Generally, the healthcare sector is highly defensive and (pardon the pun) relatively immune to economic downturns and stock market hiccups. Since we can't control when we get sick or what ailment(s) we develop, there's always a need for prescription medicine, medical devices, and healthcare services.
But in Intuitive Surgical's case, the company has been hit by the COVID-19 pandemic. Hospitals and surgical centers have repurposed some of their spending during the pandemic, while patients or surgeons have pushed out some elective procedures. In short, the pandemic has held back Intuitive Surgical's potential. But as with the other companies on this list, these short-term concerns don't affect the company's robust long-term growth outlook.
One of the greatest things about Intuitive Surgical is its veritable monopoly in the surgical robotics space. The company ended 2021 with 6,730 installed da Vinci surgical systems worldwide. That's considerably more than all of its competitors. Since da Vinci systems are pricey (roughly $500,000 to $2.5 million) and training surgeons is time-consuming, buyers of its surgical systems tend to remain customers for a long time.
Perhaps even more important, Intuitive Surgical is built to grow its operating margins over time. During the 2000s, most of the company's revenue derived from selling its da Vinci systems. The problem is that these systems are intricate and costly to build. But as the installed base of da Vinci systems has grown, so has the percentage of sales derived from instruments sold with each procedure and the servicing of these systems. These two operating categories offer substantially higher margins and allow Intuitive Surgical's earnings to grow faster than its sales.
There's also a long runway for da Vinci to pick up surgical market share. Though it's already the most popular option for urology and gynecology surgeries (relative to laparoscopic procedures), there's ample room for da Vinci to become a mainstay in thoracic, colorectal, and other general soft tissue procedures. It's this long runway that could allow Intuitive Surgical to grow by a double-digit percentage throughout this decade, if not well beyond.