The Nasdaq Composite has fallen nearly 30% year to date, putting the tech-heavy index firmly in bear market territory -- what Wall Street calls a prolonged drop of 20% or more from the market's high.
If you have at least 10 years before retirement, market crashes are great opportunities to put money to work. For example, if you had invested $1,000 in the S&P 500 index when the market bottomed out in the Great Recession (Sept. 29, 2008), you would have $4,744 today (including reinvested dividends). And that's even after the 19% drop in the index since the start of the year.
Here are three promising stocks that have been clobbered by the market and could make patient investors a pile of money once this downturn ends.
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1. Poshmark
Poshmark (POSH) saw its shares fall 64% over the last year. Like many growth stocks that have fallen from grace lately, investors punished the secondhand-clothing marketplace for slowing growth and losses on the bottom line. Wall Street is also worried about the economy heading into a possible recession, but these short-term concerns don't have any impact on Poshmark's long-term growth trajectory.
In fact, higher inflation could steer more people to look for deals on the resale market, which would play right into Poshmark's hands. The secondhand clothing market, in particular, has been growing much faster than the broader apparel industry. Market research website Future Market Insights projects secondhand clothing sales to grow at a compound annual rate of 11.2% through 2031. This fast-growing market led Etsy to acquire Depop last year for $1.6 billion.
It's a competitive market, but Poshmark has separated itself from the pack by building a leading brand through marketing and by leaning heavily into the app's social features. For example, more than 80% of all purchases are generated after someone likes, comments, or makes an offer on the marketplace.
Poshmark reported a 12% year-over-year increase in gross merchandise value and a 13% increase in revenue in the first quarter. It's capable of growing much faster, as noted by its 27% revenue growth rate in 2021. Demand for resale clothing and other luxury goods should hold up relatively better than the broader apparel market during a recession, but Poshmark also should grow into a larger business 10 years from now.
Over the long term, Poshmark sees more growth as it wins over new customers, and expands into new categories and international markets. This is a promising small-cap stock to bet on for the long haul.
2. Netflix
Netflix's (NFLX 1.94%) stock price is down 70.3% year to date. The stock reached an all-time high of $701 in 2021, but it too is being punished by investors. Netflix's slowing subscriber growth caused a swift change in market sentiment. The negative sentiment went into high gear when the company reported a net subscriber loss of 200,000 in the first quarter.
Investors need to have a contrarian mindset to invest in Netflix right now, especially since management guided for a net subscriber loss of 2 million in the second quarter. But there's one simple reason Netflix is worth considering: TV entertainment is still in a long-term shift toward streaming. Fortune Business Insights projects the video streaming market to grow nearly 20% per year for the next several years and reach $1.7 trillion by 2029. That gives Netflix plenty of opportunities to get back on its feet.
Management said it is considering launching a lower-priced ad-supported plan. It's also starting to stagger the releases of popular shows, such as Ozark, to keep subscribers engaged with the service for longer stretches. There are tools at its disposal that the company hasn't tapped that could stimulate growth again. Investors shouldn't give up on it just yet.
Overall, there are three reasons to consider Netflix:
- The long-term shift to digital entertainment.
- Netflix's leading content library.
- Low expectations for growth.
At a price-to-earnings ratio of 17, Netflix doesn't have to grow at high rates to earn a good return on the stock from here. If you believe it still has a place in streaming, now could be the perfect opportunity to buy shares at a value price.
3. Monday.com
Shares of Monday.com (MNDY -0.96%) are down nearly 68% year to date. The stock traded as high as $450 last year before falling all the way to its current $100 price. At least one notable investment manager was buying shares of the project management platform last quarter.
Josh Tarasoff, founder of Greenlea Lane Capital, initiated a position in Monday.com in the first quarter. Tarasoff has delivered a 17% annualized return since 2006, so it's worth checking out his stock picks. For what it's worth, he was also buying Netflix.
Monday.com has experienced tremendous growth over the last few years. It offers companies an operating system for managing almost any kind of project, including marketing campaigns, sales, and more. The software platform's easy-to-use interface and customization allow teams to create applications and streamline workflows to boost productivity.
The proof is in the results: From 2019 to 2021, Monday.com's revenue has exploded from $78 million to $308 million.
Forrester Research estimates that employees who used Monday.com's marketing tools were able to reduce meeting time by 50% while also seeing a 27% reduction in the time to launch new ad campaigns. These savings are why many companies are turning to digital solutions, which spells more opportunities for this leading workplace management platform.
Still, the market hates unprofitable growth stocks right now. While Monday's revenue grew 84% year over year in the first quarter, it reported a net loss of $66 million.
Patient investors, however, have an advantage over the short-term focus of Wall Street. It makes sense for Monday.com to reinvest as much as possible to tackle what the company sees as a $56 billion addressable market, so the lack of profits shouldn't be a concern right now. Management expects to improve margins as the business grows.
All said, at a relatively small market cap of $5 billion, this mid-cap stock could be a steal in this bear market.
