A $2,000 initial investment in stocks can set you up to make a ton of money in the long run. That modest investment will take you even higher if you buy shares at a bear market discount.
Many of the world's greatest growth stocks are on fire sale right now. Let's take a look at two of these bargain-bin stocks tied to nitro-powered business engines. Here's why Netflix (NFLX -9.09%) and ServiceNow (NOW -2.39%) look like no-brainer buys today.
Netflix
The market has been rough for just about everyone in 2022, but media-streaming veteran Netflix really took it on the chin. The stock is trading 58% below last November's 52-week highs, even after bouncing 76% above the multi-year lows of May.
Before you start tossing rotten tomatoes in my direction, let me reassure you that Netflix really is a robust growth stock. The gains just look a little different from what we're used to.
Investors and analysts have evaluated Netflix based on its ability (or lack thereof) to add millions and millions of new subscribers every quarter. It's true that management used to optimize the business to deliver exactly that -- tremendous subscriber growth first, rising revenues and profits second. But that's not how Netflix runs its business anymore.
Instead, Netflix is "increasingly focused on revenue as our primary top line metric," according to recent regulatory filings. That focus will only intensify as the recently launched ad-supported service and account-sharing alternatives start to make a meaningful financial difference. Management will still report subscriber numbers, but you have seen the end of subscriber-count guidance from Netflix's leadership team.
Economic concerns such as soaring exchange rates for the U.S. dollar and raging inflation around the world are also limiting Netflix's short-term revenue growth. But the long-term goal is what it always was -- stealing market share and screen time from old-school broadcast and cable channels until it's all gone. We are watching the switch from horse-drawn buggies to modern cars, but in the video entertainment sector.
And it will take many years before Netflix can cross that ambition off its bucket list. According to Nielsen Media measurements, Netflix has only captured 7.6% of American consumers' video-viewing time. That's more than twice the viewing engagement with Amazon Prime and 40% more than Walt Disney's trio of streaming services. Still, the work has barely begun.
So yes, Netflix will still enjoy many years of impressive revenue and earnings growth, even if the subscriber counts start to flatten out. The real trick is to collect more money per subscriber or to widen the service collection with new revenue-generating ideas. And the stock is still on fire sale. It's high time to grab some Netflix stock while the discount lasts.
ServiceNow
Digital workflow specialist ServiceNow provides cloud-based services to support the day-to-day operations of other businesses. The company has a finger in many pies, ranging from app development and employee service portals to vaccine-tracking and order management platforms. ServiceNow is a digital glue that can help your company fix problems you didn't even know it had.
These services are especially helpful now that remote and hybrid work is on the rise. CEO Bill McDermott believes that the macroeconomic "crosswinds" we see today are less powerful than the long-lived tailwinds that drive ServiceNow's business growth.
"Hybrid multi-cloud deployments, adoption of a modern data infrastructure stack, cybersecurity and risk management, AI and data analytics, remote work and collaboration, these trends are not only durable, their relevance is expanding," McDermott said in last month's third-quarter earnings call. He continued:
There'll be 750 million new applications built by 2025. In the U.S. alone, nearly 100 million workers will remain in hybrid environments. Twenty-seven billion connected devices will drive more data in cloud over the next three years. And ServiceNow's platform directly addresses all these challenges, which translates to numerous growth vectors for our business.
In other words, ServiceNow's market is just as packed with growth drivers as its recent past was. Sales increased by a compound annual growth rate of 33.5% in the last five years, and the company is also an efficient cash machine:
NOW Revenue (TTM) data by YCharts
Yet, the stock price has fallen 41% from (all together now!) last November's all-time highs. That's life for high-octane growth stocks in 2022, even if the underlying business is booming. Like Netflix, this stock is spring-loaded for a tremendous recovery whenever investors dare to touch growth stocks again.
Buying stocks in a bear market
Bear markets can make investors nervous, but they also offer opportunities to buy stock in top-shelf companies at a discounted price. ServiceNow and Netflix strike me as great bets on a long-term market recovery thanks to their market-leading positions in their chosen sectors, supported by many long-term growth engines.
