It's been a challenging year for new and veteran investors alike. While the 30 blue chips that make up the Dow Jones Industrial Average (^DJI -0.11%) have declined 13% year-to-date, the tech-heavy Nasdaq Composite has fallen nearly 28% at the time of this writing.
Some growth stocks have fallen much more in value this year, but that means their futures are being heavily discounted. This is the kind of environment where patient investors lay the foundation for wealth-building returns. After all, buying great companies when their stock prices are trading below their intrinsic values is how the best investors became famous.
If you have $1,000 to invest, the following stocks would make sound investments for the long term.
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Airbnb
Shares of Airbnb (ABNB 1.17%), the online lodging marketplace, have tanked 31% year-to-date and currently sit close to new lows. However, that performance is certainly not reflective of the company's recent health. Airbnb reported first-quarter earnings results that show a strong recovery underway in global travel.
The stock's valuation looks more attractive at a price-to-earnings multiple of 46 based on this year's estimated earnings. Plus, analysts expect earnings per share to grow at an annualized rate of 64% over the next five years. That represents a PEG ratio of less than 1, which is a steal for this fast-growing business.
In the first quarter, nights and experiences booked exceeded pre-pandemic levels. Revenue grew 70% year-over-year, which represents the increase in hosting fees Airbnb collects for renting out properties on the platform. Specifically, management continues to see growing demand for longer-term stays, which the company credits to the remote work trend.
Given its recent string of strong quarters, the worst appears to be over for Airbnb. Management reported that "people are becoming increasingly confident in booking travel further in advance." Lead times are ahead of 2019 levels heading into the second quarter, and management sees "strong sustained pent-up demand."
The stock's valuation is getting cheaper even as the business is growing faster. Something's going to give at some point, and I would bet on the stock. Investors who buy shares at these price levels have a good chance of earning a satisfying return over the next five years and beyond.
Apple
Apple's (AAPL 1.27%) stock has fallen 23% year-to-date, bringing its price-to-earnings ratio down to 24 at the time of writing. The tech giant's earnings have grown at a compound annual rate of 23% over the last five years, and analysts expect Apple to grow earnings at an annualized rate of 9.9% over the next five years.
Its PEG ratio may not look as attractive as Airbnb's, but even Warren Buffett's Berkshire Hathaway (BRK.A -0.28%) (BRK.B -0.68%) bought a few shares of Apple in the last quarter, so it's worth considering.
There is strong demand for the new 5G iPhones. In the quarter ended March 31, iPhone revenue increased by 5% year-over-year, led by sales of the iPhone 13. That growth rate might seem weak, but Apple was comparing against a year-ago quarter when iPhone revenue exploded by 65% year-over-year. From that perspective, the recent performance is quite good.
It was an impressive quarter given the challenging economic environment. Consumers are paying higher prices for everyday goods, but Apple's products have almost become daily necessities for many people. If the economy worsened in the near term, that could pressure sales of its pricey devices, but the lower stock price already discounts the potential for this scenario to an extent.
Regardless of how Apple's business performs this year, the business has a bright future based on its inherent competitive advantage. Other than brand power, Apple has a tight ecosystem of hardware and services that leads to sales of more products over time. This in turn drives higher sales of apps and subscriptions, where Apple generates a higher profit margin. After reaching an installed base of 1.8 billion active devices at the beginning of the year, management reported that the installed base hit another record in the quarter ending March 31.
How to invest for the long term
If you believe in the long-term durability of Apple's brand, buying shares at lower valuations will increase your future return on investment. A sensible buying strategy might be to invest $250 now and add another $250 later in the year. That might be a good idea for Airbnb, too.
No one knows when the market sell-off will end, but dollar-cost averaging helps neutralize wild price swings. It's a helpful strategy when you believe in a company's future and just want to invest without all the stress of near-term market volatility.
