There are many great investing ideas in the market right now. The S&P 500 (^GSPC -0.88%) index is down more than 12% in the last six months, and the more volatile Nasdaq Composite (^IXIC -2.05%) has lost an even steeper 24%. Some of the plunging stocks behind these index moves flew too high before the correction. They were overdue for a haircut. Other valuations looked reasonable in December and downright cheap today.
And then there are Netflix (NFLX -9.09%) and Fiverr International (FVRR -0.96%). These two stocks struck me as fantastic buys six months ago, and now they are over 70% more affordable than that. I'm not a very active trader, but I simply had to double down on my Fiverr and Netflix investments last week. You don't see buy-in windows like this every day -- or every year.
Is it raining gold? Let's grab a big bucket! Image source: Getty Images.
Netflix: The best entry point since Qwikster
Generally speaking, market timing isn't worth the effort. You have to be lucky to buy stocks at their absolute lowest lows and sell at their maxed-out highs. But there are exceptions to the rule. Even legendary value investor Warren Buffett agrees that you should take full advantage of obviously excellent buy-in windows. "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble," Buffett says.
Let's say you bought some Netflix stock just before the Qwikster debacle, at the height of the company's powers as a DVD-mailer subscription service. As of Sept. 14, 2011, Netflix shares had gained 706% in two years and traded near the highest valuation ratios in the young company's history.
If you bought $10,000 of Netflix stock that day and held it until today, you'd have $65,070 in your pocket. An S&P 500 index fund with reinvested dividends would be worth an almost comparable $42,620 instead:
Now let's imagine that you kept your hands off Netflix's shares while prices were surging. Instead, you saw the Qwikster crash for the massive buying opportunity it was. Remember: Netflix may have fumbled the public messaging around splitting off the digital streaming service as a separate business, but it was very much the right move in the long haul.
So you waited until Nov. 1 before putting $10,000 into Netflix shares, instead. I'm not cherry-picking the absolute bottom of the barrel here, as Netflix would still fall another 20% before the rebound really started. Early November was just when I poured some more funds into my own Netflix investment that year.
And that little bit of patience and foresight made a massive difference. Starting from somewhere near the Qwikster-laced bottom, a modest $10,000 seed would have grown to nearly $170,000 today:
The stock is now back to prices not seen since 2017. You can pick up Netflix shares at the bargain-bin valuation of 3 times trailing sales or 19 times earnings. And it's all due to a massive misunderstanding as market makers focus exclusively on a couple of quarters with lower subscriber growth than expected. The bears are ignoring Netflix's efforts to widen profit margins instead of optimizing every move for subscriber growth. As a result, top-line sales have tripled in five years while earnings have skyrocketed 1,240%:
NFLX Revenue (TTM) data by YCharts. TTM = trailing 12 months.
You wouldn't call your insurance company and claim your car as a total loss just because you drove over a speed bump, would you? Yet that's what happened to Netflix's stock in early 2022. This is where you grab your bucket, not a thimble, to capture an absolutely stellar opportunity.
Fiverr reminds me of a young Netflix
Don't worry, I won't dive that deeply into Fiverr today. You have already seen the background info I would have wanted to share for this stock, anyway.
You see, I think of Fiverr as the second coming of Netflix. The provider of match-up platforms between people offering freelance services and people or companies needing these services is only getting started with a massive growth story. Fiverr is a key component of the so-called gig economy, disrupting the job market as we know it.
But many investors don't see the forest for the trees and have written off Fiverr as a short-lived play on the coronavirus crisis. That's a big mistake. As people and companies around the globe continue to get comfortable with freelancing services, this small-cap company is poised to deliver enormous business growth and wealth-building stock returns over the next couple of decades.
This is Fiverr's first Qwikster-like mismatch between low stock prices and great long-term business prospects. I hope you have another bucket ready. The thimble is the wrong tool for this gold-catching job, too.
