The stock market sell-off has created many attractive opportunities. At the top of my list are Chegg (CHGG 0.90%), Meta Platforms (META 0.18%), and Airbnb (ABNB 0.90%). These three are excellent businesses trading at cheap valuations.
I know that the market may remain volatile for some time, but I trust these businesses will continue making progress in enhancing sales and profitability. Here's an explanation of why these are at the top of my list.
Chegg is an international education technology company that primarily serves college students. It has been growing revenue and operating income solidly and boasts a substantial competitive advantage.
Revenue jumped from $255 million in 2017 to $776 million in 2021. The increase fueled a jump in operating income from -$23 million to $78 million in that same time. At the core of its business advantage is 79 million pieces of proprietary content it has spent years and millions of dollars to acquire.
A decrease in college enrollment since the pandemic's onset and the broad market sell-off has Chegg selling at a price-to-free cash flow of 16. A growing business with a competitive advantage, selling at a bargain price: check, check and check.
2. Meta Platforms
Meta Platforms, formerly known as Facebook, boasts nearly half of the planet as monthly active users. It's free to join and use. Meta makes money by showing advertisements to users browsing the app. Interestingly, marketers overall spent $763 billion globally in 2021. That was up by 22.5% from the prior year.
That same year, Meta generated $118 billion in revenue, up from $5.1 billion in 2012. A dominant business in a massive, growing industry is undoubtedly an attractive characteristic of a company. To make it even more enticing, Meta Platforms earned an operating profit margin of 39.6% in 2021.
The company faces headwinds in the near term, including Apple's privacy changes, competition from TikTok, and reduced advertiser demand because of macroeconomic factors. However, I feel that Meta's cheap price, trading at 13.5 price-to-free cash flow and 14.5 price-to-earnings, creates a margin of safety if it does not grapple with one or more of those challenges effectively.
Worldwide travel facilitator Airbnb is bouncing back strong after the pandemic devastated travel demand. In its most recent quarter, which ended March 31, Airbnb said revenue was 80% higher than the comparable quarter in 2019. Airbnb brings together those looking for a place to stay with hosts offering rooms or homes. For its services, Airbnb takes a percentage of the transaction value.
Understandably, spending on hotels and resorts plummeted in 2020 when the threat of severe outcomes from COVID-19 was higher. Expenditures on hotels and resorts rebounded by $340 billion in 2021 but are still nearly $500 billion below 2019 levels. I suspect that pent-up demand from consumers who have delayed vacations will boost spending above 2019 levels over the next few years.
Moreover, Airbnb will likely capture a meaningful portion of the spending. Like the other two companies, Airbnb is selling at a bargain price. At a price-to-free cash flow of 26, it is near its lowest price in years. Admittedly, that is higher than what Chegg and Meta Platforms are trading for, but Airbnb's prospects are much better in the near term than the aforementioned. For that benefit, I don't mind paying the higher price.
Overall, the price/value relationship among these three stocks is excellent. So long as these dynamics persist, they will be my favorite stocks to buy.