Investors who got into the market for the first time in 2021 are finding out that stocks can fall sharply, even when there's no pandemic directly responsible for the sudden downdraft. Yet, the ill effects of COVID-19 are still lingering and remain an underlying cause for much of what we see playing out today. For example:
- The aggressive government stimulus response to the pandemic is being blamed for the highest inflation rates in 40 years.
- Persistent supply chain issues due to government lockdowns, especially China, are wreaking havoc on the availability of goods.
- The Federal Reserve's sudden ratcheting up of interest rates is now causing worry of a possible recession.
Still, if there is one key theme that such gyrations underscore for those who have been investing for years, it's that long-term investing is still the best strategy to deploy in the market. Ever since the Dow Jones Industrial Average was created in 1896, and similarly the S&P 500 from its inception in 1957, every single bear market and correction has eventually been followed by a bull market.
Image source: Getty Images.
The Schwab Center for Financial Research says the average bear market lasts only about 17 months, while InvesTech Research says the average bull market lasts 3.8 years, with the longest being 11 years, from 2009 to 2020.
In other words, having patience and betting on Wall Street's rebound is smart. In that spirit, let's look at two growth tech stocks that should pay off handsomely in 2022 and beyond.
1. Nvidia
Nvidia (NVDA -0.44%) stock is down 56% from its all-time high last year as investors transitioned away from previous highfliers into more defensive consumer staples stocks. While the market wasn't necessarily wrong to become cautious, particularly as the gaming chipmaker itself was wary about the coming year, cutting more than half its valuation seems an overreaction.
Almost every segment of Nvidia's business continues to perform above expectations, with gaming and data center revenue at record levels -- and the latter is now its premiere growth segment. It also saw strong expansion in the professional visualization space, and though robotics and automotive were down, they're a tiny portion of its revenue. It's the ongoing supply chain problems that are the root cause, not Nvidia's operations.
Wall Street is still forecasting that revenue will grow almost two and a half times over the next five years to $65.6 billion and that profits will nearly triple to $12.28 per share. As a result, this still-explosive growth stock trades at a multiple to its earnings that it hasn't seen since the pandemic struck. The loss of $450 billion in valuation in a little over six months makes Nvidia a ripe opportunity.
2. Amazon
It's over for Amazon (AMZN -1.23%). It's never coming back. I mean, if you look at the market's reaction to the e-commerce giant's latest earnings report, that's the picture you come away with now. Some $815 billion -- not too far from $1 trillion worth of valuation -- has been wiped out from its stock.
But that's just crazy talk. The response to the earnings report was predicated on the massive $4 billion loss Amazon reported, but it was almost wholly the result of its investment in electric truckmaker Rivian, which resulted in a pre-tax loss of $7.6 billion as part of its nonoperating expenses. Amazon's e-commerce operations and its cloud services business remain healthy.
Certainly, the retail side of things is showing signs of maturity, though one could argue that 8% growth in a business reporting almost $50 billion in quarterly sales is still pretty robust. While international e-commerce was down, Europe is facing some unique challenges, not the least of which is the war in Ukraine, and a 6% decline in sales is not fatal.
Amazon Web Services (AWS) is the real growth engine these days with revenue rising 37% year over year -- a well of profitability for the company. And as more businesses move operations online, they'll continue to view Amazon as a vital resource to rely upon for these services.
Although Amazon.com is worth "only" around $1 trillion these days, analysts still expect it to expand earnings at a 40% compound annual rate for the next five years. Let that sink in. The fifth-largest company in the stock market is expected to grow profit at rates that most growth companies could only imagine.
That makes Amazon a stock that should continue to deliver for investors now and for many years to come.
