The stock market is a great long-term wealth-creating machine, but as investors have seen in 2022, market corrections can come unexpectedly. If you have at least five years to hold these stocks, the current market correction means that Amazon (AMZN -1.64%), Netflix (NFLX -3.92%), and Lululemon Athletica (LULU -0.03%) could be great picks right now.
Here's why three Motley Fool contributors believe these stocks are poised to rebound over the next year.
Analysts expect Amazon to post 15% sales growth in 2023
John Ballard (Amazon): The momentum in Amazon's retail business has slowed in recent quarters, with net sales growth coming in at 7% over the last two quarters. That is far off the pace of what growth investors have been used to, which is why the stock is down this year. But investors shouldn't expect single-digit growth to be the new norm.
Amazon is investing to expand its fulfillment capacity and transportation fleet to meet future demand. While that has pressured profits and the stock in 2022, these investments should put Amazon's business in an even stronger competitive position down the road, as previous spending cycles have before.
Next year could see the company's efforts begin to pay off. Last quarter's net sales growth of 7% was stable with the previous quarter. As the company enters the third and fourth quarters, the comparisons with last year's strong performance will move behind Amazon, allowing revenue growth to accelerate back toward the mid-teens.
Analysts currently expect Amazon to post revenue of $127.9 billion for the third quarter, representing growth of 15.5% over the year-ago quarter. Analysts also see Amazon's current spending cycle easing up, allowing profits to recover based on current earnings estimates. A return to double-digit growth heading into 2023 would go a long way to sending the stock higher.
Expect even more growth from this highflier
Jennifer Saibil (Lululemon Athletica): It's rare to see retailers demonstrating strong growth in 2022, so it's worth noting the ones that are. It's also rare for a stock to be gaining in 2022, so a company that posts growth with a tanking stock price spells opportunity.
Lululemon Athletica had softer pandemic declines than similar companies and bounced back quickly. It's now back to double-digit growth for the past eight quarters, including a 29% increase in revenue in the 2022 fiscal second quarter (ended July 31). That's continued robust growth through inflation and global economic uncertainty, demonstrating resilience under pressure, not to mention when times are good.
Lululemon operates a carefully structured model that combines high-quality, patented fabrics and exclusive designs with a mix of omnichannel shopping options and a focus on community. Stores can include workout rooms and sessions, highlighting the community aspect and that the company "gets" its clientele. Many of Lululemon's designs are also not seasonal, giving it less pressure to mark down prices, as well as strong profitability.
It mostly sticks to this approach, but success in its core products gives it leverage to try out new products and limited productions. It recently launched a women's shoe line that management said has seen an enthusiastic response.
On the heels of the tremendous success over the past few years (it reached several planned goals ahead of schedule), Lululemon recently released a new growth strategy. The new strategy builds on the prior one and aims to double revenue over the next five years by doubling men's sales and digital sales and by quadrupling international sales. Analysts are confident it can achieve these new goals.
Lululemon stock has been a huge winner, far outperforming the S&P 500 over the past five years.
It's trading at price-to-earnings ratio of 38 times trailing-12-month earnings, its lowest valuation in five years outside of the market drop in 2020. At this low price, and with ambitious growth plans, this is a stock you'll want to own in 2023.
Netflix is poised for a better year in 2023
Parkev Tatevosian (Netflix): 2022 has been a lousy year for most investors. Several of the most significant market indexes are down by double-digit percentages and some individual stocks are trading down over 90%. But a new year is approaching and there is optimism that the new year will bring some recovery for several stocks. One of my early favorites for 2023 is Netflix. The streaming pioneer had a challenging year in 2022 but it also made some changes that could propel it going forward.
Most notably, Netflix plans to abandon its long-held strategy of not offering an ad-supported version of its service at a lower price. Several new entrants to the streaming market have the lower-priced option. That has been shown to attract cost-conscious customers who don't mind watching advertisements in exchange for paying less. Netflix already boasts 220.6 million subscribers. The addition of lower-priced options could attract millions more.
Management has also noted it has as many as 100 million users who are watching the content without paying for the service. These unauthorized account sharers can be better monetized if the primary account holder opts for the ad-supported option. Marketers pay for the opportunity to influence people's purchasing decisions. They are willing to pay higher prices to show their ads to more people.
NFLX PE Ratio data by YCharts
The current year was one of headwinds for Netflix. Next year could be one in which it reaccelerates growth. Netflix stock is at its lowest valuation in years when measured by its price-to-earnings ratio, and investors can improve their prospects for 2023 and beyond by adding the stock to their portfolios.
