The stock market can play tricks on your mind. You feel invincible in a bull market, but in a bear market you feel like you'll never make money again. It's been a long fall for many growth stocks in 2022, but keep your head up. Historically, Wall Street has always recovered, and there isn't a reason why this would be any different.
The market will probably rebound at some point, so now is a great time to start thinking about your top investment ideas for 2023. Stocks like Shopify (SHOP -19.31%), Workday (WDAY 0.13%), and Sea Limited (SE -0.18%) were losers in 2022, but here's why they could be big winners in 2023 and beyond.
Stock up on this e-commerce stock
Will Healy (Shopify): Most long-term Shopify investors probably want to forget 2022. This time last year, it had flirted with all-time highs. However, the bear market hit this one-time high-flyer hard. Since reaching its high, Shopify has lost almost 80% of its value.
Admittedly, the stock price had probably moved ahead of its growth rate. Also, e-commerce growth slowed as consumers emerged from lockdowns, making its price unsustainable. However, the case for Shopify stock may have improved during that time from a competitive standpoint. It has built an ecosystem to address the direct needs (and many of the indirect needs) of e-commerce businesses.
Shopify Plus, its software package designed to attract large and high-growth businesses, continues to gain traction. On the Q3 2022 earnings call, Shopify President Harley Finkelstein revealed that Plus claimed 35% of all point-of-sale pro sales in Q3, up from 14% in the year-ago quarter.
Additionally, the Shopify Fulfillment Network (SFN) facilitates order fulfillment and returns for customers. With Shopify's purchase of Deliverr complete, it can now serve as a one-stop shop for all logistics needs. The fact that Amazon is its only competitor in this area will help Shopify stand out above software-oriented peers.
Still, Shopify has returned to losses as the cost of building the fulfillment network weighs on the bottom line. Also, while Q3 revenue of $1.4 billion rose 22%, that lagged the three-year compound annual growth rate for revenue of 52%.
Nonetheless, for the remainder of 2022, the company predicted slowing operating expense growth and a higher percentage of merchant solutions revenue. Merchant solutions, the segment that includes SFN and other business management services, accounted for 72% of company revenue in Q3. Shopify's revenue also rose 26% year over year, beating the overall average.
Moreover, its stock sells for just 9 times sales, a massive reduction from the 45 P/S ratio it reached one year ago. With the company positioned for increased growth, Shopify stock should experience a recovery in 2023.
Shares of this workforce management company could bounce back in 2023
Jake Lerch (Workday): If you think 2023 can be a bounce-back year for the stock market (and I do), it's worth pondering: Which stocks would benefit the most? For me, Workday is a name that jumps off the page.
The company is a leading provider of cloud-based workplace solutions. It serves over 50% of Fortune 500 companies, supplying cloud enterprise solutions for human resources, financial planning, and analytics.
Like many tech stocks, Workday has been hit hard in 2022, with its share price falling 48% year to date. However, the company's fundamentals remain solid. Workday reported strong second-quarter earnings back in August and is due to report third-quarter earnings in mid-November.
Revenue continues to grow over 20% on a year-over-year basis and now stands at $5.7 billion over the last 12 months. Of that $5.7 billion, $5 billion comes from subscription revenue. What's more, back in August, management reiterated its long-term goal to reach $10 billion in annual sales.
Workday continues to grow its customer base and has recently achieved FedRAMP-authorized status, meaning the company can now sell its products to U.S. government agencies.
It all adds up to a great environment for Workday in 2023 -- if the broader economy can get its act together. Next year the Federal Reserve is likely to pivot away from the massive interest rate hikes that have become the norm in 2022. Meanwhile, double-digit inflation will eventually moderate, relieving some pressure that has held back tech stocks this year.
And that's why I think Workday is poised to benefit. It's a name investors should get to know now -- before next year's catalysts take its stock significantly higher.
This internet company is cutting costs and gearing up for a big 2023
Justin Pope (Sea Limited): E-commerce, payments, and gaming company Sea Limited was among the big winners during the pandemic, soaring to a peak of roughly 1,000% from its pre-pandemic share price. But as they say, easy come, easy go. The stock has given up virtually all of those gains throughout 2022. Wall Street can be irrational sometimes, which means it can overshoot to both the upside and downside.
You saw the example of the upside when the stock ballooned to a price-to-sales ratio (P/S) of 30, a valuation showing how much the share price outran the business's growth during the pandemic. But today, you're seeing the opposite: The stock is trading at its lowest valuation ever, which might give someone the impression that Sea Limited is a struggling company.
SE PS Ratio data by YCharts
However, the data primarily disputes that. Sea Limited is generating more revenue than ever. The business saw a surge of growth during the pandemic, including 158% year-over-year revenue growth in Q2 of last year. But instead of declining after such a big leap, revenue increased another 29% in the second quarter of this year. Some may frown at what's technically a slower growth rate, but it signals that the COVID-19 boost was no fluke. One might even see growth pick back up next year as those tough growth comparables from 2021 pass.
The company isn't profitable, but invests heavily to fund growth. Fortunately, management has recognized the need to cut back some and did pull back on some of its expansion efforts in Latin America. Sea Limited is well funded, with $7.8 billion in cash, so the company is on solid financial footing.
Sea's seen some bumps in the road, but the car is still on the tracks. Investors can revisit this thought if the company burns through its cash reserves without making considerable progress toward turning a profit. It burned $1.4 billion over the past year, so that $7.4 billion should buy it time. Assuming Sea Limited can continue growing while it reduces its cash burn, the dire valuation leaves room for an upside move once market sentiment improves.
