The tide has been going out on the market as of late -- and especially on high-growth technology. The Nasdaq Composite Index is down some 30% from all-time highs, but many individual stocks have been beaten down even more than that.
The reasons for this vicious crash are numerous, but here's the thing about tides: They don't go out and stay out forever. Eventually, quality companies will weather the storm and make a comeback. Three Fool.com contributors think that Qualcomm (QCOM 0.73%), MercadoLibre (MELI 1.96%), and Zebra Technologies (ZBRA 1.81%) will make a quick turnaround once the selling has abated. Here's why.
Image source: Getty Images.
A chip giant turning over a new page
Nicholas Rossolillo (Qualcomm): For a number of years, investors pretty much forgot all about mobile chip giant Qualcomm. As 5G mobile networks started to go live and 5G-enabled phones hit the market, shares began to emerge from their slumber as growth was reignited. But then 2022 happened, and most of Qualcomm's gains were suddenly erased.
Data by YCharts.
I believe that is a mistake that investors will rectify sooner than later. Granted, there is concern that there could be a slowdown in consumer spending on electronics and mobile devices. That isn't slowing Qualcomm down much, though.
Second-quarter fiscal 2022 (the three months ended March 27, 2022) revenue was up 41% year over year to $11.2 billion, and adjusted earnings per share were up 69% to $3.21. Free cash flow was $2.2 billion, a healthy 20% margin. $1.7 billion of that amount was returned to shareholders via a dividend ($764 million, currently yielding 2.3% a year, and share repurchases worth another $951 million). That kind of investor-friendly behavior is exactly what will do well in a rising interest rate environment.
Even better was Qualcomm's outlook. For its fiscal third quarter, revenue is expected to rise another 30% to 40%, building on the 65% boom the chip designer enjoyed in Q3 2021. Adjusted earnings per share are forecasted to be up 43% to 54% year over year. This outlook excludes the recent acquisition of the Arriver advanced driver assist software business.
Bear in mind that Qualcomm isn't just a smartphone chip company anymore. While 5G should keep its handset business on a steady incline for the next few years, its automotive and Internet of Things segments are booming as mobility technology begins to be incorporated en masse in new industrial applications. Shares currently trade for 21 times trailing-12-month free cash flow, but only 10 times one-year forward expected earnings. That's incredibly cheap, and a deal that won't be ignored forever.
This is a great entry point in global e-commerce companies
Billy Duberstein (MercadoLibre): At its recent lows, Latin American e-commerce leader MercadoLibre was down nearly 68% from its highs set back last summer, and it's still down well over 50%. That's in spite of delivering sterling recent earnings results by most metrics.
While many e-commerce companies are delivering tepid growth as they lap the difficult comparisons from a year ago, MercadoLibre continued to deliver, both literally and figuratively. E-commerce revenue grew 44% on 32% gross merchandise volume (GMV) growth off difficult comparisons. The higher revenue growth was thanks to MercadoLibre charging more for its growing logistics services, as well as increased merchant advertising. Both should allow MercadoLibre to continue increasing its take rates and grow more profitable in the future.
Meanwhile, its MercadoPago payments platform continues to grow like gangbusters, up 81.2% in the quarter, buoyed by skyrocketing 138% off-platform payments growth. That means customers are using MercadoPago to pay for a wide variety of goods and services, not just on MercadoLibre's e-commerce platform. Given the size of the Latin American market and the continuing penetration of digital commerce and payments, investors should be cheering those growth rates.
But they weren't -- although that may have had more to do with macroeconomic and marketwide forces hurting all growth stocks. If there was one thing to quibble with in the report, it was that operating margins slipped from 6.6% in the year-ago quarter to 6.2% last quarter.
However, MercadoLibre is still in hyper-growth mode, so fluctuations in operating income shouldn't matter that much. Furthermore, management actually breaks down the different sources of profit and loss, and last quarter's declining margins were due to heavier investments in research and development and technology, as well as growing credit losses due to the hyper-growth of the consumer credit book. The company actually grew revenue faster than cost of goods sold, sales and marketing, and general and administrative expenses. That's a good indicator MercadoLibre will grow more profitable as the business scales.
While some may worry about the growth of the loan book in this uncertain macroeconomic environment, management said profits in consumer loans were on target and within its models. It's just that the consumer loan segment is a higher-rate, higher-loss business than merchant loans. MercadoLibre has a wealth of data on consumers and their spending patterns, so it should be as advantaged as anyone in the region in underwriting loans.
Long story short, MercadoLibre looks to be a much bigger and more profitable business years from now. Yet with investors seemingly scrutinizing this quarter's bottom line amid rising interest rates, they seem to be missing the forest for the trees. That means opportunity.
Zebra keeps trotting ahead, even in tough market conditions
Anders Bylund (Zebra Technologies): The marketwide flight from growth stocks and other high-risk assets has dragged down many stocks that don't belong in Wall Street's bargain bin. Zebra Technologies has fallen nearly 50% in 2022, including a 25% drop in the last month alone, but there is nothing wrong with Zebra's business prospects.
The company has beaten analysts' estimates on both the top and bottom lines in each of the last eight earnings reports. In the recently posted first-quarter update, for example, your average analyst was looking for earnings near $3.87 per share on sales in the neighborhood of $1.37 billion. Instead, Zebra delivered earnings of $4.01 per share on top-line revenue of $1.43 billion.
Zebra is in the business of data collection and management, based on its market-leading barcode-scanning solutions and radio frequency identification (RFID) chips. You could hardly pick a more exciting niche to focus on right now. E-commerce vendors manage their inventory and shipping operations with Zebra's technology. Healthcare systems use Zebra to handle patient records and hospital assets. Old-school retailers are also leaning on barcodes and RFID systems in their maker-to-customer pipelines. It shows in Zebra's soaring sales and robust bottom-line earnings:
ZBRA Revenue (TTM) data by YCharts
Zebra's shares look so affordable right now that the company sees great value in buying back its own stock. About 1.5% of Zebra's shares were retired in the last quarter, and the buybacks continue today. This is the most enthusiastic buyback spree in the company's history, and Zebra is spelling out a fantastic buying opportunity to interested investors.
Data sources: Zebra's quarterly reports and YCharts. Chart by author.
