The stock market got hammered during the first three quarters of the year. Rising interest rates and unchecked inflation sent the S&P 500 tumbling into a bear market, and the broad-based index is currently 23% off its high.
Of course, it is never fun to lose money, but there is a silver lining here for patient investors. The bear market has knocked many high-quality stocks like Sea Limited (SE -2.20%) and Walker & Dunlop (WD 1.40%) down into bargain territory, creating a buying opportunity.
Here's why investing in these growth stocks today could be a genius move.
1. Sea Limited: The leader in e-commerce and mobile gaming in Southeast Asia
Singapore-based Sea Limited is a holding company that operates three different businesses. First, Shopee is the most popular e-commerce marketplace in Southeast Asia in terms of monthly visitors, though it has also expanded into several countries in Latin America. Shopee supports its merchants with value-added services like fulfillment, logistics, and advertising, reinforcing its leadership position.
Second, SeaMoney is a fintech company that provides payment processing services to Shopee and non-Shopee merchants, both online and offline. It also offers digital wallets to consumers, as well as other financial services like digital banking, insurance, and credit.
Third, Garena is a video game developer and publisher best known for Free Fire, a battle royale game that once again ranked as the most downloaded mobile game worldwide in the second quarter. Free Fire also ranked as the highest-grossing mobile game in Southeast Asia and Latin America.
Sea Limited has grown incredibly quickly since the onset of the pandemic, but losses from Shopee and SeaMoney have also widened. That trend continued over the past year, as revenue soared 73% to $11.8 billion, while cash from operations clocked in at negative $1.5 billion. On the bright side, Garena is currently profitable, and SeaMoney is expected to achieve positive cash flow in 2023. Better yet, CEO Forrest Li says Shopee and SeaMoney will generate enough cash by 2025 to "self-fund their own long-term growth."
Turning to the future, e-commerce sales across all relevant geographies are expected to reach $470 billion by 2025, and digital payments volume in Southeast Asia will exceed $1.1 trillion by 2025, according to a report from Bain & Company. For context, Shopee facilitated about $63 billion in sales last year, and SeaMoney's mobile wallet volume was just over $17 billion.
In short, Sea Limited has a tremendous runway for future growth in its e-commerce and digital payments businesses, and with shares trading at 2.6 times sales -- the cheapest valuation since Sea went public -- buying this growth stock looks like a genius move.
2. Walker & Dunlop: The leader in multifamily lending and a key player in affordable housing
Walker & Dunlop specializes in commercial real estate financing, with a particular focus on multifamily lending and affordable housing investment management. In fact, it is the largest provider of capital to the multifamily industry and the fourth-largest commercial real estate lender in the U.S.
Walker & Dunlop bears little credit risk due to its status as an agency lender, meaning it originates loans on behalf of government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac. Generally, risk-sharing agreements cap its losses at 20% for Fannie Mae loans, and the company very rarely shares any risk on Freddie Mac loans. That gives Walker & Dunlop an advantage over many commercial real estate lenders, and that edge is particularly valuable in the current macroeconomic environment. High inflation and rising interest rates put extra pressure on borrowers, making defaults more likely.
Additionally, Walker & Dunlop is the sixth-largest low-income housing tax credit (LIHTC) syndicator in the U.S. For context, a LIHTC syndicator pools capital from institutional investors into tax credit funds, which are used to finance affordable housing projects. That element of its business is particularly timely, as U.S. home prices have skyrocketed since the onset of the pandemic, creating a need for affordable housing.
Financially, Walker & Dunlop continued to deliver solid results over the past year. Revenue climbed 28% to $1.4 billion, and earnings climbed 8% to $8.36 per diluted share. And shareholders have good reason to believe that momentum will continue.
Walker & Dunlop captured just a 9% market share in the $470 billion multifamily industry last year. But its leadership in multifamily lending, the strength of its affordable housing platform, and its expansive portfolio of adjacent services (e.g., appraisals and housing market research) should help it capitalize on its massive market opportunity. And with shares trading at 10.5 times earnings -- a discount compared to the five-year average of 11.1 times earnings -- buying this growth stock today could prove to be a genius move in the long run.
