Wall Street is making history in 2022 -- just not the type of history that investors with long positions have appreciated. In no particular order, we've:
- Watched the broad-based S&P 500 deliver its worst first-half return in 52 years;
- Witnessed the technology-focused Nasdaq Composite shed as much as 38% of its value in less than a year; and
- Observed as the nation's central bank shed its role as stock market savior in favor of inflation-tamer by aggressively hiking interest rates into a plunging market.
Even the bond market is having its worst year ever! With the exception of the energy sector, there have been few safe havens in 2022.
Image source: Getty Images.
However, history is also a beacon of hope for long-term investors. That's because every notable decline in the major U.S. stock indexes has eventually been wiped away by a bull market. This makes the current bear market an ideal time for investors to put their money to work.
While great deals abound across a multitude of sectors and industries, there is a handful of truly once-in-a-generation buying opportunities amid this historic bear market. What follows are three of those once-in-a-generation buying opportunities.
AT&T
The first jaw-dropping buy opportunity that's been unearthed by the 2022 bear market is telecom stock AT&T (T -0.43%). Yes, value and income stocks can present with once-in-a-generation potential, and AT&T certainly fits the bill.
During most years, telecom giants like AT&T are low-volatility stalwarts counted on for their operating stability and above-average dividend yields. But in 2022, telecom stocks have been rocked by the rising prospect of a U.S. recession and rapidly rising interest rates. Since most telecom companies finance infrastructure upgrades, spectrum purchases, and acquisitions with debt, higher interest rates will make future expansion projects costlier.
But in spite of these headwinds, AT&T stands out as a no-brainer buy for three reasons. First, the company is set to benefit from the 5G revolution. The last time telecom companies upgraded wireless download speeds was about 10 years ago. Though it'll take AT&T a few years and billions of dollars to update its wireless infrastructure, the move to 5G download speeds should entice businesses and consumers to steadily upgrade their wireless devices and increase their data consumption. AT&T generates some of its highest margins from data usage.
Second, the WarnerMedia spin-off earlier this year is a big move in the right direction for AT&T's balance sheet. When the WarnerMedia content arm was spun off and merged with Discovery to create Warner Bros. Discovery in April, the deal closure led to AT&T receiving a combined $40.4 billion in cash and Warner Bros. Discovery's assumption of certain debt. This deal gives AT&T more financial flexibility, which includes paying a 6% yield.
And third, AT&T is historically cheap -- even after bouncing more than 20% off of a multidecade low. Since 1995, large telecom providers have predominantly traded at forward price-to-earnings ratios between 10 and 15. On October 20, integrated telecommunication service providers had an average forward P/E ratio of just 6.6. Shares of AT&T can be purchased for an inexpensive multiple of 7 times forward-year earnings, which looks like a bona fide steal given the predictability of its operating model and the ramp-up of 5G.
Fiverr International
Companies don't have to be decades old to represent once-in-a-generation buying opportunities in this historic bear market. Online-services marketplace Fiverr International (FVRR 0.25%) is a perfect example of this.
Fiverr's shareholders have been on quite the ride. In a roughly 31-month stretch between the initial stages of the COVID-19 pandemic and today, Fiverr's share price catapulted from the low $20s to more than $320 and has round-tripped all the way back to $26. Wall Street's avoidance of premium valuations, coupled with the likelihood that higher interest rates will increase the unemployment rate, have weighed on shares.
However, we've witnessed significant growth in Fiverr as a company over a short time frame, as well as a discernible shift in the labor market that favors its platform. These are the factors that make it such an amazing deal right now.
As I've previously noted, Fiverr's marketplace stands out for how jobs are offered. Whereas many of the company's competitors list freelancer jobs on an hourly basis, freelancers advertising their services on Fiverr present their scope of work as a package deal. Having upfront clarity on pricing has made Fiverr a preferred platform for businesses and is a key reason spending per buy has continued to rise even as the U.S. economy weakens.
Fiverr's take rate is also unmatched among online-service marketplace providers. A company's "take rate" describes what percentage of a deal it gets to keep. In Fiverr's case, its take rate is nearly 30% and has been consistently rising throughout the pandemic. For context, Fiverr's biggest competitor, Upwork, reported a 15.4% take rate in the third quarter.
But the biggest catalyst for Fiverr is the permanent shift to the labor force caused by COVID-19. Even though some workers are returning to the office, a hybrid/remote-work environment has become the norm for a number of sectors and industries. That bodes well for Fiverr, which has decisively turned the corner to adjusted profitability.
With sustained double-digit growth potential and an industry-leading take rate, my suspicion is this will be the last time investors have an opportunity to buy shares of Fiverr at around $30.
Image source: Getty Images.
Meta Platforms
The third once-in-a-generation buying opportunity during a historic bear market is social media stock Meta Platforms (META -2.28%). Meta is the company formerly known as Facebook.
The scale of Meta's value destruction in 2022 has been epic. The company, which achieved a $1 trillion valuation in late June 2021, has seen its market cap fall back to nearly $250 billion. Average price per ad has been down by a double-digit percentage, while expenses tied to Reality Labs, the company's metaverse-projects division, have skyrocketed. Through the first nine months of 2022, Reality Labs has produced a $9.44 billion loss for Meta.
And yet, there are plenty of reasons to believe this could be the bargain of a generation for patient investors.
First of all, Meta's social media assets appear grossly undervalued given their popularity and ad-revenue potential. The company's family of assets, which includes Facebook, Facebook Messenger, WhatsApp, and Instagram, grew its monthly active user count to 3.71 billion in the September-ended quarter. This means more than half of all adults worldwide are visiting at least one Meta-owned site each month. Despite ad prices dropping in the short term, long-winded bull markets suggest Meta will have no issue regaining the upper hand in ad-pricing power.
Something else to consider is that Facebook's sales are being hurt by a stronger U.S. dollar. Historic strength in the dollar means overseas revenue being converted back to dollars hurts revenue recognition. While the tangible impact of a stronger dollar shouldn't be ignored, it's masking an operating performance from Meta that's better than a lot of investors realize.
Another thing to note about Meta is that it's a cash cow. Yes, it's throwing a lot of money at its metaverse bet, which could make it on-ramp to a multitrillion-dollar opportunity toward the end of the decade. But keep in mind that Meta generated close to $36 billion in net cash from operating activities through the first nine months of 2022. It also ended the third quarter with $31.9 billion in net cash, cash equivalents, and marketable securities. In other words, Meta has the financial capacity to take risks without hurting its core business.
Although forward-year earnings projections remain fluid, it can be argued that Meta Platforms is cheaper now than it's ever been. This looks like the perfect time for opportunistic investors to pounce.
