Prolonged dips in various sectors of the market over the past year or so have even the most seasoned investors a bit shaken, but that doesn't mean it's time to liquidate your holdings. Long-term investors know that times like these can offer excellent opportunities to invest in extraordinary companies with stocks trading at a temporary discount.
If you've got $1,000 available that isn't needed to pay monthly bills, reduce short-term debt, or bolster an emergency fund, you might want to take that available capital and begin putting it to work buying stock in two incredible companies that a bear market has discounted for you.
1. Align Technology
If you're not familiar, Align Technology's (ALGN 0.61%) flagship product is its Invisalign system, which has been used by more than 13 million individuals globally over the past two decades or so as an alternative to traditional orthodontics. Align generates most of its revenue from its clear-aligner systems, but its other core product is the iTero intraoral scanner, used by dental practices around the world. It also makes money from software that it sells to dental practices to support these systems.
Share prices for Align are down by more than 75% over the trailing 12 months as broad market sentiment turned against many growth-oriented companies. But the decline can also partly be attributed to the company's recent quarterly report. Revenue fell 12.4% year over year for the quarter to $890.3 million. That drop along with increased production costs and other headwinds out of its control contributed to a 59.8% drop in net income to $72.7 million. Earnings per share of $1.36 came in significantly below Wall Street analyst expectations of $2.18.
This setback can also be partially attributed to tough year-over-year comparisons to 2021 when total revenue for the year rose 60%. CEO Joe Hogan attributed its top- and bottom-line performance to "macroeconomic uncertainty and weaker consumer confidence, as well as a significant impact from unfavorable foreign exchange rates across all currencies that affect our operations."
So the short-term outlook for Align is admittedly concerning. But a long-term view shows the situation is not all that bad. Over the past decade, Align has grown both its annual revenue by more than 600% and its net income by 1,200%. Essential and in-demand products are still generating revenue growth and resulting in earnings for the company over a prolonged period. This has also enriched investors, with the stock delivering a total return of about 575% over the trailing decade.
But, as they say, past performance isn't always an indicator of future performance. To get some sense for future performance, it can help to look at a company's potential market. The global clear-aligner addressable market was $2.9 billion in 2021 and is projected to exceed $10 billion a year by 2028 (a compound annual growth rate of 19.7%). Currently, Align controls roughly 85% of this lucrative space. The global intraoral scanner addressable market was $835 million in 2021 and is projected to total about $4.8 billion by 2030 (a compound annual growth rate of 15.9%). This is another segment of the market where Align remains a pre-eminent player.
So the recent quarter's performance, which was largely due to events not tied to the underlying business, was admittedly disappointing, but investors looking at this stock for the long haul might still find data to pique their interest. The company's current discounted price, strong track record of success, unmatched market leadership, and sticky business model are all green flags for this medical device stock. Add in a consensus analyst stock price forecast for 30% growth over the next 12 months and the indicators are suggesting a buy during this bear market.
2. Etsy
The performance of e-commerce specialist Etsy (ETSY -2.17%) grabbed many investors' attention early in the pandemic, and it led to a precipitous rise in the stock price. Over the past year, however, the stock has fallen by more than 63% as pandemic-influenced performance slowed. Generally, the market has also (at least temporarily) shed value from many growth-centric stocks as investors seem to favor less-volatile investments in the current environment.
While a growth-oriented e-commerce stock like Etsy might not be for every investor, its long-term trajectory offers some reason for interest. The company occupies a very specific and lucrative niche in global e-commerce. Its focus on handmade, vintage, and specialty items is a key differentiator from other e-commerce companies.
Even as Etsy has grown its family of brands -- like the acquisitions of secondhand marketplace Depop and Brazil-based competitor Elo7 in 2021 -- it remained true to this central theme. All that while it has continued expanding its share of a broad total addressable market that it estimates to be worth as much as $2 trillion when including all its product segments.
Yes, the most recent quarter was a tad bumpy (although the company beat Wall Street's revenue estimates). Consolidated gross merchandise sales (GMS) declined about 3% compared to a year ago. Etsy also reported a noncash impairment charge of $1 billion to write down its 2021 acquisitions.
On the flip side, revenue was up 12% year over year, non-U.S. GMS surged 9% from a year ago, and its net loss actually shrunk by about $1.1 billion from the same quarter last year to $963 million. Etsy also added 6 million new buyers to its platform in the quarter. It's worth noting too that GMS surged 134% in the third quarter of 2022 when compared to the same quarter in 2019. Etsy closed the three-month period with a cash balance of $1.1 billion.
Even with ongoing macro headwinds, the strong U.S. dollar, and changes in consumer spending in the current environment, Etsy continues to realize strong growth from pre-pandemic levels as its business normalizes compared to the pandemic era. This could be a compelling buy for long-term investors. Wall Street analysts still estimate that the stock has a potential upside of around 88% in the next year.
