2022 has been rough. The bear market is obliterating stocks, even those of quality companies that will be just fine if fears of a looming recession come to fruition. Many investors are hyperfocused on conserving cash, leaving opportunities for those with a longer-term focus.
If you fall into the latter camp and are looking for some deals, a number of depressed stocks could be poised to soar once the bear decides to go back into hibernation. Three Fool.com contributors think Amazon (AMZN 0.54%), SVB Financial Group (SIVB +0.00%), and Okta (OKTA 0.78%) fit this bill. Here's why.
1. Amazon's "spring" has been tightening for two years
Billy Duberstein (Amazon): If we're talking about stocks "spring-loaded" for a rebound, not only has Amazon.com sold off in 2022, but the stock actually hasn't done much for the last two-plus years after an initial spike following the pandemic outbreak. But given Amazon's relentless investments in growth and innovation, investors can be comforted by the fact that Amazon never stays down for long.
NASDAQ: AMZN
Key Data Points
Is Amazon's heyday finished? Far from it. While the company's e-commerce business slowed as economies reopen and the consumer is squeezed by inflation, it's not as if Amazon lost any of its competitive advantages. In fact, in lean times, the largest, most-advantaged companies tend to take market share from weaker ones.
While the recent downward guidance from FedEx caused some concern for the broader e-commerce segment and economy at large, this could also be a case of Amazon's delivery service taking market share. Amazon spent huge amounts on fulfillment and logistics over the course of the pandemic, allowing Amazon to actually pass FedEx in terms of parcels shipped in 2021 for the first time. With Amazon building excess capacity relative to e-commerce demand, it recently launched "Buy with Prime" in April for third-party websites and may be undercutting FedEx on shipping rates to fill up its delivery vans and planes.
Even in a terrible second quarter for e-commerce names broadly due to difficult comps from the prior year, Amazon still managed to grow third-party sales on its platform by 9%, or 13% when adjusting for currency. Online first-party sales were down 4%, but flat when adjusted for currency. Given all the headwinds and difficult comps in Q2, that's actually a fantastic result.
Amazon is also increasingly looking to own the home with new Prime Video offerings like the new Lord of the Rings series and Thursday Night Football, while also recently announcing new Echo devices and Fire TV sticks and TVs just this week.
Speaking of e-commerce and Fire Sticks, Amazon's advertising segment is a relative bright spot in a dismal digital advertising environment, up 18% (21% in constant currency) last quarter. As IDFA changes harmed targeting capabilities of social media platforms, Amazon's ad platform, which is so close to the customer point of purchase, benefited on a relative basis.
And most important of all, while the economy may slow, we are still in the midst of a massive transition to cloud computing, where Amazon Web Services (AWS) is still far and away the market leader, with a solid first-mover advantage. This is a 30% operating margin business, growing 33% year over year last quarter. Cloud growth isn't going away anytime soon and may even benefit in lean times, as the cloud enables companies to save on not having to build their own data centers.
It's rare to see Amazon's stock not move higher during a two-year span. But once Amazon rationalizes or grows into its much larger e-commerce footprint, profits should inflect upwards, as should the stock price. That may happen sooner than some people think.
2. A top bank for the world of high tech
Nicholas Rossolillo (SVB Financial Group): Why would a bank stock find its way onto a list of fast-growing tech businesses? Well, for one thing, bank stocks tend to do well as an economy comes out of a slump.
Additionally, SVB Financial Group is no ordinary bank stock. SVB stands for Silicon Valley Bank, and as the name implies, this financial services operation caters to the technology and start-up community -- in the California Bay Area, and in other tech hubs around the world.
In particular, SVB's specialty is banking and lending services to start-ups, their founders, and venture capital firms that invest in them. As disruptive upstarts gained traction over the years, SVB's client funds on deposit and loan portfolio steadily climbed.
Given the high-risk, high-reward nature of these small businesses and their investors, Silicon Valley Bank can generally coax higher-than-average interest rates from its banking portfolio. Plus, as part of funding deals, SVB often negotiates an equity stake for itself in these start-ups -- creating a pipeline of opportunities to bank some extra coin if these small businesses grow and eventually go public.
OTC: SIVB
Key Data Points
However, as could be expected, SVB took its fair share of blows from the economic turmoil this year. Its own stock was blasted by the public market, and its customers took a hit on the private side of the equation, as rising interest rates lowered valuations on tech start-ups and slowed the pace of new venture capital deals.
While SVB's loan balances keep rising, client deposits dipped in Q2 2022. Equity losses mounted too. As a result, the bank lowered its outlook for growth for full-year 2022, with the expectation that net interest income will be up by a mid-40% from a year ago (previously low-50% growth expected before), offset by substantial decreases in its investment portfolio.
The short story, though, is this remains a fast-growing bank. The ongoing turbulence in private-equity markets led to a nearly 50% sell-off in the stock so far this year. But as of this writing, shares trade for just 13 times trailing-12-month earnings. Once the storm clouds start to clear, this tech start-up banker could take off like a rocket.
3. Okta: Easy to install, tough to replace
Anders Bylund (Okta): Digital identity and authentication specialist Okta has seen share prices fall 80% from last November's 52-week highs. This dramatic price drop is purely a reaction to the economy at large, as investors stepped back from high-flying growth stocks in favor of safe value havens. The stock clearly belonged in that category 12 months ago, with a nosebleed-inducing valuation ratio of 35 times trailing sales at its peak.
NASDAQ: OKTA
Key Data Points
So Okta may have been due for a correction back then, but the story is different now. The price-to-sales ratio has retreated to 5.4, which is broadly in line with slower-growing tickers such as Salesforce and Apple.
The stock is changing hands at a premium price, even after the recent price cuts, but you're also investing in a superior business here. It's true that the company is going through a difficult integration process with the $6.5 billion buyout of Auth0, but that's a short-term speed bump in front of a long-term sales growth highway.
And the whole investment thesis goes back to one simple fact: Compared to a plethora of rivals, Okta's identity services come with better tech support and easier installation. Therefore, these tools are easy to sell and difficult to replace. In an era of increasing digital access to business and productivity tools, that's a recipe for tremendous success in the long haul.
Okta's management estimates the company's total addressable market at $40 billion today and $80 billion in 12 years. So far, Okta is only collecting 4% of the current annual revenue opportunity and 2% of the estimated 2035 market. I expect the high-octane sales growth to continue for many years, and the low stock price in today's bear market will soon be remembered as a fantastic buying window.
