The S&P 500 index is down by roughly 19% over the last year. Meanwhile, the Nasdaq Composite has slumped by 34%, and the Dow Jones Industrial Average is down approximately 9%. Those broad sell-offs mean that stocks with winning performances in 2022 are few and far between, but the turbulence also means that investors have the chance to build positions in companies with market-crushing potential at big discounts.
With that in mind, two fool.com contributors have identified these stocks as smart buys in the wake of their eye-catching valuation pullbacks.
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This EV-charging specialist has huge return potential
Keith Noonan: As opposed to investing in individual electric vehicle (EV) stocks, ChargePoint (CHPT +0.48%) stands out as a pick-and-shovel play that could help investors benefit from the expansion of the network of EV charging stations needed to power those vehicles. Within the niche of networked level-2 charging -- a technology that allows for faster charging -- ChargePoint has more than 70% market share in the North American market, and it's on track to play a key role in facilitating the EV revolution.
Its revenue surged by 93% year over year to $125.3 million in the third quarter, and the business is still in the early stages of tapping into a massive market opportunity. But that strong sales momentum didn't stop the company's stock from participating in 2022's big valuation pullback.
As rising interest rates, high inflation, and other macroeconomic pressures have become the focus of the stock market, investors have increasingly fled from those companies that are not serving up strong earnings. Because ChargePoint is prioritizing expanding its operating footprint and growing its sales, the business still isn't profitable, and its share price has now fallen by roughly 81% from its peak.
NYSE: CHPT
Key Data Points
With the company valued at roughly $3.1 billion and trading at approximately 6.4 times expected sales, ChargePoint still has a growth-dependent valuation in a market that's averse to stocks with that characteristic. But the company is still small enough to have huge room for expansion, and its forward price-to-sales multiple doesn't look disqualifying in the context of its rapid sales growth and impressive long-term expansion potential.
ChargePoint isn't a low-risk stock, but it stands out as a worthwhile investment candidate for those seeking exposure to the EV space. The valuation picture may be volatile in the near term, but ChargePoint has the potential to deliver tremendous payoffs for long-term investors.
3M's diversified portfolio powers slow, steady growth
Parkev Tatevosian: 3M (MMM +2.66%) is one of the world's biggest industrial conglomerates, selling tens of thousands of products beyond its iconic adhesive tapes and Post-It notes. The stock is down 30% over the last year and 52% off its 2018 high due largely to this year's broad market declines and the potential for tens of billions of dollars of losses from outstanding litigation. I think this is an opportunity for long-term investors to scoop up shares of this steady industrial stock.
Admittedly, 3M is not a fast-growing company. Its revenue has increased at a meager 1.8% compound annual rate over the last decade to reach $35.3 billion. However, what it lacks in growth, it makes up for in profitability. Its gross and operating profit margins have averaged 48.4% and 21.7%, respectively, in the last 10 years. 3M's broad assortment of products could prevent a sharp slowdown in revenue and profits if recessions hit developed countries next year.
MMM PE Ratio data by YCharts
Investors can benefit from holding that kind of defensive stock in their portfolios. Moreover, after a 30% price drop over the last year and 52% fall from its 2018 valuation peak, 3M stock trades at a price-to-earnings ratio of less than 11, near the lowest level in its recent history. Of course, 3M stock will not multiply your money in a month -- but investors will do well buying proven companies at reasonable valuations and holding them for several years. That's what you can reasonably expect from 3M stock -- modest wealth creation in the long run.
ChargePoint and 3M are two very different stocks
From a valuation-and-risk perspective, there are stark contrasts between ChargePoint and 3M. ChargePoint is a small, rapidly expanding business with a growth-dependent valuation, while 3M is an established industrial giant posting consistent profits and trading at an attractive earnings multiple.
Depending on your personal risk tolerance and portfolio goals, you may find one of these stocks significantly more appealing than the other. On the other hand, both could be worthwhile buys for investors seeking diversified exposure to the industrial sector.
