Last Friday, Federal Reserve Chairman Jerome Powell delivered a serious blow to U.S. stock markets. Specifically, Powell said the Federal Reserve will continue to raise interest rates until it is confident that inflation is under control. These remarks halted the recent upward trend across the varied U.S. stock landscape. The key reason for this abrupt trend reversal is that Wall Street was expecting the Federal Reserve to back away from its aggressive interest rate hike strategy heading into 2023.
The Federal Reserve's battle to tamp down inflation has pushed every major U.S. stock index deep into the red for the year. Since the start of 2022, the S&P 500 has dropped by 14%, the Dow Jones Industrial Average has lost 9.97% of its value, the Nasdaq Composite has sunk by a hefty 22%, and the Russell 1000 has plunged by nearly 15%. While the veracity of this current bear market is indeed concerning, investors ought not lose sight of the fact that down periods in U.S. stock markets tend to be short lived. Put simply, savvy investors shouldn't be afraid to take advantage of this widespread sell-off.
Apple: A competitive moat like no other
Technology giant Apple has lost nearly 8% of its value this year. Investors have been selling the company's shares in 2022 over fears that inflation will slow consumer spending. While inflation has indeed hit certain industries and companies in recent weeks, Apple has been the exception to this general rule. In its most recent quarter, Apple posted a respectable 2% increase in revenue year over year, powered by rising sales of its iconic iPhone and its increasingly popular services segment.
Not surprisingly, classic value investors like Warren Buffett have been taking advantage of this recent weakness in Apple's shares. In the second quarter of 2022, Buffett's diversified holding company, Berkshire Hathaway, scooped up a whopping 3,878,909 of Apple's shares. As a result, Berkshire now owns a healthy 5.5% stake in the tech behemoth.
What does Berkshire see in this tech stock? The bottom line is that Apple's beloved products like the iPhone and iPad sport a rock solid competitive moat in the marketplace. Short-term economic headwinds aren't going to change this fact. Apple's stock, in turn, ought to regain its forward momentum at some point in the near future.
Tandem Diabetes Care: Growth galore
Shares of the insulin pump technology specialist Tandem Diabetes Care have crashed in 2022. Specifically, the medical device company's stock has fallen by an eye-popping 68% this year. The good news, if you can call it that, is that Tandem's sizable downturn has been spurred mostly by profit-taking, although the company's recent downward revision for its 2022 sales guidance certainly didn't help matters.
Why is profit-taking the key culprit behind Tandem's sudden trend reversal? The backstory is that Tandem's stock gained a monstrous 6,280% over the period covering Jan. 1, 2018, to Jan. 1, 2022. As a result, its shares were trading at a hefty premium at the start of 2022.
Unfortunately, this risk-averse market hasn't been kind to medical device stocks trading at rich premiums. Tandem's stock, in short, was clearly a victim of this unrelenting wave of profit-taking across premium-laden equities in the medical device space.
In the wake of this move lower, however, Tandem's shares are arguably a downright bargain right now. The main reason investors ought to circle back to this beaten-down stock is the fact that the company's insulin pump platform has an enormous growth opportunity in front of it.
Tandem's shares, in fact, might be trading at as little as 0.5 times 2030 sales right now. Now, there are several moving parts associated with this long-term financial projection. But the fact is that there will continue to be a large and growing need for Tandem's diabetes care products for a long time to come. This bodes extremely well for the medical device company's long-term outlook.