Whether you're a brand-new investor or someone who's been putting their money to work on Wall Street for decades, you've learned, or been reminded of, one of investing's most valuable lessons: Stocks don't go up in a straight line.
Since the year began, both the iconic Dow Jones Industrial Average and benchmark S&P 500 have entered correction territory (i.e., lost at least 10% of their value). Meanwhile, the technology-driven Nasdaq Composite has tumbled as much as 23%, which places it squarely in a bear market.
Although big declines in the major indexes can be scary, they're the optimal time for opportunistic long-term investors to strike. After all, every major decline throughout history has eventually been erased by a bull market rally. Being patient and piling into high-quality companies that are trading at a discount is a moneymaking strategy far more often than not.
If you have $300,000 at the ready and your investing horizon is measured in years, the following three deeply discounted stocks have all the tools necessary to turn your initial investment into $1 million, if not more, by 2030.
Since hitting its all-time intra-day high in March 2021 of nearly $77, shares of PubMatic have retraced 70%. Historically high inflation and the potential for substantially higher interest rates have quelled investor demand for ad-dependent companies. But in spite of this shortsighted thinking, there are plenty of reasons to be excited about this company's future.
To start with, advertising revenue has been consistently shifting from print to digital formats. PubMatic is a sell-side provider, which in simpler terms means it places digital ads in available display space for publishing companies. As more ad dollars move to video, mobile, and connected TV formats, PubMatic should see its slice of the global digital ad spending pie grow.
Something to note about PubMatic is that it's been growing at a much quicker pace than the industry average. Even with the pandemic accelerating the shift of ad dollars to digital channels, global digital ad spend is "only" growing by a little over 10% annually. By comparison, PubMatic delivered a 49% organic growth rate in 2021, and is expected by Wall Street to generate annual sales growth of around 25% in 2022 and 2023.
Not only is PubMatic rapidly growing its topline, but it's beginning to realize economies of scale from its internally developed cloud infrastructure. Since it doesn't have to rely on third parties, PubMatic's gross margins are climbing. Over time, this should allow the company's earnings growth to outpace its already robust sales growth.
Even though PubMatic's forward-year price-to-earnings ratio is 26, I'd estimate its price-to-earnings-growth ratio (PEG ratio) at about 1, based on Wall Street's forecast revenue growth. Historically, tech stocks with a PEG ratio of 1 or less are considered undervalued. This should give PubMatic a good chance to turn $300,000 into $1 million in eight years or less.
Generally, the furniture industry is slow-growing and borderline boring. In other words, it's an industry ripe for disruption, which is exactly what Lovesac brings to the table. There are two key aspects of Lovesac that give investors the potential to turn $300,000 into $1 million by the turn of the decade, if not sooner.
The first key differentiator for Lovesac is the company's furniture -- more specifically, its core product, the "sactional." Sactionals are modular couches that can be rearranged dozens of ways to work with virtually any living space. In fiscal 2022, nearly 88% of Lovesac's sales derived from sactionals.
In addition to being functional, sactionals offer an incredible amount of choice. There are multiple upgrade options, including built-in charging stations and high-end speaker systems, as well as over 200 cover options. This means sactionals will match any color or theme of a home.
If you need one more reason why sactionals are so popular, consider this: the yarn used in sactionals is made entirely from recycled plastic water bottles. The company's core customer base (millennials in their mid-to-late 30s) cares deeply about the environment, and Lovesac has responded by producing ecofriendly furniture.
The second differentiator for Lovesac is its omnichannel sales platform. Lovesac was able to shift nearly half of its sales online during the pandemic, which meant it wasn't hurt nearly as bad as traditional furniture stores by a reduction in foot traffic. By promoting direct-to-consumer sales, and leaning on partnerships and pop-up showrooms, Lovesac has significantly reduced its overhead expenses, relative to its competition.
Shares of Lovesac can be purchased for a little over 10 times Wall Street's forecast earnings for fiscal 2024. That's incredibly inexpensive for a company slated to grow sales by 31% in fiscal 2023 and 22% in fiscal 2024.
Over the past 10 months, shares of Qorvo are lower by 45%. Similar to PubMatic, fears over inflation, rising interest rates, and the possibility of a recession, have substantially compressed the valuation multiples of traditionally cyclical companies like Qorvo. But at some point valuation compression no longer makes sense. I believe that's where we are with Qorvo.
The clearest catalyst for this company is the 5G revolution. Over the next couple of years, telecom companies will be spending big bucks to upgrade their wireless infrastructure to handle 5G speeds. With it being about a decade since download speeds were last meaningfully improved, 5G infrastructure upgrades should lead to a multiyear smartphone replacement cycle. Since Qorvo generates most of its revenue from providing radio-frequency solutions found in next-generation smartphones, 5G is its ticket to steady high single-digit growth.
It's also worth pointing out that Qorvo is one of Apple's most-trusted suppliers. Last year, 30% of Qorvo's revenue came from Apple. With Counterpoint's data showing that Apple controlled 56% of U.S. smartphone market share in the fourth quarter of 2021, Qorvo looks poised to benefit from iPhone innovation for a long time to come.
Investors shouldn't discount ancillary growth opportunities, either. Even though Qorvo is dependent on smartphones for growth, it does offer advanced antenna solutions in next-gen vehicles, as well as intelligent motor controllers in battery-powered bicycles and scooters.
Shares of Qorvo can be purchased by patient investors for less than 9 times Wall Street's forecast earnings for 2023. That's one heck of a bargain for a company poised to steadily grow over time.