No matter how long you've been investing, market corrections are never fun to live through. While the S&P 500 index is down 14.5% from its previous high, the tech-heavy Nasdaq Composite is officially in bear market territory, down more than 25% at the time of this writing.
But if you look at any long-term chart of these indexes, you'll notice that the occasional dips are always followed by much longer periods of sustained returns. In fact, the current market correction is only a tiny blip in the context of multiple decades' worth of returns.
If you have an extra $1,000 to buy stocks, the market downturn should be looked at as an opportunity. There are great companies with bright futures selling at much lower valuations than a year ago. Splitting a $1,000 investment between the following stocks could multiply over the next decade.
1. Snap
A lot has changed over the last year for the augmented reality-based social media app developer. This time a year ago, Snap (SNAP -3.16%), which generates virtually all its revenue from advertising, reported top-line growth of 66% in the first quarter of 2021. Growth accelerated through Q2, rising 116% year over year, but recently macroeconomic headwinds have started to pressure the top line.
Last month, management said it would likely report second-quarter revenue and adjusted operating profit below the low end of its guidance range. The previous outlook called for revenue to rise 20% at the low end, so Snap is going to show a sharp deceleration in growth next quarter after reporting a Q1 revenue increase of 38%.
Advertisers are clearly starting to pull back the reins on spending this year. But the best time to invest in companies that make money from advertising is when the economy is weak and advertising dollars are drying up. It's usually the only time an investor can buy shares of a leading social media platform provider at a significant discount to what they're really worth.
It's a given that a slow economy is going to cause advertisers to tighten spending. It's also a good bet that the economy will recover as it always has, and Snap's growth will pick up again. Snap has a valuable platform for advertisers to reach younger generations, with over 250 million users engaging with augmented reality every day on average.
The stock is currently trading at 82% of its all-time high of $83. When there is doom and gloom in the headlines, it's time to think like a contrarian investor. Snap could be a high-return investment from current levels, but investors need to be prepared for more share-price volatility in the near term.
Image source: Getty Images.
2. Lululemon Athletica
Some top retail companies have reported sluggish growth to start the year, but some are doing great despite the recent drop in their share prices. Lululemon Athletica (LULU 0.19%) falls in the latter category. In the three-month period ending May 1, the yoga specialist accelerated its revenue growth from 23% in the fiscal fourth quarter to 32% year over year.
Lululemon's impressive fiscal Q1 earnings report is a sign of how strong its brand is becoming in the global athletic apparel market. If a retail company can increase revenue 32% in this economy, imagine how well it would be performing if there was low inflation and supply chains were normal.
Lululemon continues to win with its omnichannel presence across its physical store locations and e-commerce channel. "Our product continues to drive demand, and we experienced robust traffic growth in both channels, with stores and e-commerce up approximately 40%," CEO Calvin McDonald said during the earnings call.
The company is obviously seeing strong demand for merchandise, and this stretches across geographic boundaries. Even with the pandemic-driven lockdowns in China, management is moving forward with most of its 40 international new stores this year planned for mainland China. China e-commerce sales increased 51% year over year last quarter, and it remains a huge long-term opportunity.
While Lululemon could experience difficulties in the near term, such as higher input costs from inflationary pressures, the recent dip in the stock is a good opportunity to buy shares of this fast-growing athletic wear brand.
