The Nasdaq Composite has had a rough year, shedding 10 percentage points more than the 22% decline that the S&P 500 has seen since early January. It's home to many formerly high-flying tech and growth stocks, so losses have been more concentrated in this index than in more diversified ones like the S&P 500 or the Dow Jones Industrial Average.
The good news is that this slump is creating great buying opportunities for investors who don't mind taking on short-term risk around volatility. With that in mind, let's look at two standout stocks that call the Nasdaq home. Read on for some good reasons to buy Electronic Arts (EA -0.54%) and Lululemon Athletica (LULU 0.77%) as long-term investments.
Electronic Arts will entertain you
The video game sector is under pressure today as investors worry about a growth hangover. Gamers aren't nearly as engaged in 2022 as they were in earlier phases of the pandemic. But Electronic Arts isn't so worried about a demand slump.
The developer has a massive base of gamers across free-to-play and mobile platforms, after all. It also owns one of the industry's deepest catalogs of premium gaming brands, which includes sports franchises like FIFA Ultimate, adventure shooters like Battlefield, and the Battle Royale hit Apex Legends.
Strong demand in these brands helped Electronic Arts deliver a 22% sales spike in the fiscal first-quarter period that ended in late June.
The long-term outlook is even brighter as video games shift toward more of a software-as-a-service model. Watch Electronic Arts' annual cash flow continue climbing as a result of this move. That's the right long-term metric to follow through potentially turbulent times like the next few quarters.
Lululemon isn't a stretch
Nasdaq investors are avoiding Lululemon stock for all the wrong reasons. Sure, the athleisure apparel industry might have a tough holiday season. Nike recently cited excess inventory as a key reason why management is expecting gross profit margin to fall through the rest of 2022.
Lululemon's business won't be seriously threatened by these challenges. Consider that sales jumped 29% in the quarter that ended in late July. Gross profit margin only fell slightly in the first half of 2022, dipping to 55% of sales from 58% a year earlier.
And management said in early September that it sees a good level of inventory on the books to meet expected demand in the third quarter. We'll learn whether that was the case when the retailer announces those official results by early December.
Until then, investors are taking on some risk by purchasing Lululemon stock during this unusually cloudy economic environment. Those risks are amplified by the oncoming holiday shopping season, which might bring slowing demand just as inventory levels shoot higher.
LULU PS Ratio data by YCharts
Yet in exchange for those risks, you get to own Lululemon stock at a discount. Today's price-to-sales ratio of 5.4 represents one of the lowest valuations that investors have seen in years. And while there's no guarantee that the growth stock won't get cheaper, it is generally a good long-term strategy to bulk up on successful businesses like these during turbulent market times. Looking back in a few years, you'll likely be glad that you did.
