Many growth stocks are taking a beating this year. While it can be unnerving to buy stocks as they're falling, it can also lead to significant returns later on. Quality stocks won't crash forever, and it's important to recognize which ones possess long-term value and growth opportunities as the investments that you should consider adding to your portfolio, especially while they're at reduced valuations.
Two stocks that fit that criteria include cannabis company Curaleaf Holdings (CURLF +1.30%) and theme park and entertainment giant Walt Disney (DIS +0.21%). Both of these stocks are down around 40% since the start of the year, which is far worse than the S&P 500's 23% decline. But here's why now may be an optimal time to buy them.
OTC: CURLF
Key Data Points
1. Curaleaf
What's promising about Curaleaf is this is a top multi-state marijuana company that is on track to generate more than $1.4 billion in revenue this year. And the business is only getting bigger. This month, it announced the opening of its 17th location in Pennsylvania (its 134th nationwide).
At a price-to-sales multiple of less than three, Curaleaf is trading at its lowest premium ever. The business is likely to soar in the years ahead as marijuana legalization is inevitable; according to a recent Gallup poll, more Americans than ever before (60%) support legalizing marijuana.
While legalization will bring with it red tape, it will also open up more opportunities for expansion. It will also allow cannabis businesses to build relationships with the big banks and facilitate growth without having to rely primarily on stock offerings and dilution. Today, many cannabis companies have to hold cash on hand because of how difficult it is to keep a bank account open, since the industry is illegal at the federal level.
With Curaleaf being an industry leader, it will benefit significantly from any legalization efforts in the U.S. Although the hype and excitement has largely left the sector (even the Horizons Marijuana Life Sciences ETF has fallen more than 40% this year), that doesn't mean the potential isn't there. If you're willing to just buy and hold, Curaleaf could be your ticket to some great profits in the not-too-distant future.
NYSE: DIS
Key Data Points
2. Walt Disney
Disney is a brand that's second to none when it comes to content. Its movies and popular characters are known all over the world. However, the entertainment company has been struggling this year, likely due in part to its streaming service, Disney+. Although subscriber numbers are rising, there are loads of competitors in the space, and concerns are that spending on content could hurt the company's bottom line.
However, a big reason investors shouldn't worry is that Disney's business is broader than just streaming. Revenue from its theme parks is likely to peak later this year. A combination of pent-up travel demand and rising inflation could entice families to opt for local vacation options, such as visiting the Magic Kingdom (as opposed to traveling overseas). That could boost what have already been some solid results for Disney.
Although the company's profit margin has been relatively modest and in the single digits of late (before the pandemic, Disney was easily netting more than 15% of revenue as net income), over the past 12 months, the company has still generated an impressive $1.6 billion in free cash flow. And simply just turning a profit is an accomplishment amid such adversity.
During a full year of the economy returning to normal, Disney's business is likely to perform even better. At a forward price-to-earnings multiple of 23, the stock has a much more attractive valuation than when it was trading at more than 40 times its future earnings at the start of the year.
With multiple business segments that can now generate long-term growth (its streaming business plus parks), buying Disney now could be a steal of a deal -- the last time it traded at this price point was in March 2020.
