On the back of a global pandemic, rising inflation, and the efforts to get that inflation under control, the stock market has responded by selling off considerably in 2022. The Nasdaq Composite has fallen about 26% year to date, while the S&P 500 lost 18% of its value over the same period. Just about every industry has been affected to some degree, but often for quite different reasons.
While a dip in the stock market has given many a desire to cut and run, long-term investors know that the beaten-down stocks of reliable companies won't stay down forever. They also know that a market dip offers a great chance for patient investors to buy stocks at bargain prices so they can reap the rewards later.
Let's take a look at three reliable stocks trading at a discount that offer the potential for significant gains in the long term.
1. Disney
Walt Disney's (DIS -0.21%) stock has definitely had a volatile couple of years, trading down about 29% year to date and 39% from a year ago. The steep decline is related, in part, to the ongoing adverse effects from the pandemic as well as uncertainty about the economy and potential recession. Disney did use the situation to make some adjustments (mainly to its theme parks) and add new services (like the Disney+ streaming service) that it expects to benefit from in the years to come. Some evidence of the positive effects of the changes (as well as the easing of concerns about the pandemic) can be seen in its most recent earnings report which noted a 70% year-over-year increase in parks revenue and total streaming subscribers from its three main services (Disney+, Hulu, and ESPN+) of 221.1 million, which exceeds Netflix's total.
Disney's price-to-earnings ratio, which was highly elevated by pandemic-related depressed earnings is returning to more normal levels, suggesting the company is getting its historically strong financials back on a more even keel. For instance, revenue in Disney's latest quarter was up 26% year over year, beating market expectations.
Disney has plenty of promising developments in the pipeline, including gains from price increases across all of its streaming services, an ad-supported streaming tier that could invite new subscribers and increase the company's average rate per user, and a long list of theatrical blockbusters sure to pull in significant earnings at the box office (as well as keeping subscribers interested in its streaming products). A return to expectation-beating revenue growth and a booming streaming business suggest the company (and the stock) has renewed potential to outperform in the coming years.
2. Apple
Apple (AAPL 0.58%) has proven itself to be one of the most innovative companies in history, making it a safe bet for patient investors looking to capitalize on those innovations. Investing legend Warren Buffett is certainly enamored of the stock, as Apple is his largest holding through Berkshire Hathaway by a considerable margin. In fact, roughly 41% of Berkshire's portfolio is currently tied up in Apple (895 million shares worth $122 billion as of June 30).
Apple as a stock has proven its resilience in the last year, with its stock falling less than 1% over the past year despite the Nasdaq falling 24.3% in the same period. The company's consistently increasing revenue and net income have primarily fueled its stock's stability. Despite the pandemic and some potential recession-influenced decreases in consumer spending, Apple's net sales rose from $260.2 billion in fiscal 2019 to $365.8 billion in fiscal 2021, a 40.6% jump (Apple's fiscal years end in late September). Net income increased by 71.3% in the same time frame, hitting $94.7 billion in fiscal 2021. The company has continued its growth streak in 2022, reaching a record $83 billion in revenue in the third quarter -- a 2% increase year over year. Apple has shown an ability to consistently grow revenue and earnings by producing a seemingly endless supply of promising product and service launches, making for an excellent long-term stock hold.
3. Warner Bros. Discovery
Warner Bros. Discovery (WBD 8.37%) is the result of a merger this year between Discovery and the Warner Media spinoff from AT&T. Since the conclusion of the merger in early April, the stock for this multinational mass media and entertainment conglomerate has fallen roughly 48%. That stock performance might have you wondering why this stock is being featured today.
The stock performance of late is a reflection of the market's response to efforts by CEO David Zaslav's efforts to reduce the $55 billion in debt the newly merged company was saddled with when it launched. The cuts have included the cancellation of a number of international projects, executive layoffs, shutdowns of production on nearly completed films, and millions of dollars in write-offs.
The recent cuts might seem drastic, but Warner Bros. Discovery still has a lucrative content library, popular streaming platforms, and a gaming business. The potential of what it still operates suggests it won't be down forever.
Zaslav's cuts have already allowed Warner Bros. Discovery to reduce its debt by $6 billion in its first five months of operations, an impressive feat considering the short time frame. The company may look like it's slashing its business, but in reality, it's shrinking down to eliminate risks and prioritize profits until it gains better financial footing.
Warner Bros. Discovery's price-to-earnings ratio currently sits at 6.5, a historic low for the company (or its Discovery predecessor). The figure implies that the company's earnings are much more promising than its current stock price, and investors may be needlessly cautious about the company. Warner Bros. Discovery still has a long way to go before gaining Wall Street's trust, but its business is promising, suggesting investors may be able to see significant gains if they're willing to hold long-term.
