Investing in the stock market requires investors to "roll with the punches" from time to time. Even though the major U.S. stock indexes have headed higher over the long run, stock market corrections, crashes, and bear markets are a normal part of the investing cycle. Last year, new and tenured investors were given this reminder.
When the lights went out on 2022, all three major U.S. stock indexes had delivered their worst returns since 2008. But it was the growth-dependent Nasdaq Composite (^IXIC -1.10%) that brought up the caboose with a loss of 33%.
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While the Nasdaq losing a third of its value in such a short time frame is undoubtedly brutal for short-term traders, it represents a generational opportunity for patient investors to snag high-quality stocks at a discount. What follows are three screaming bargains that can double your money by 2025.
Teva Pharmaceutical Industries
The first surefire bargain that has the potential to double your money by mid-decade is brand-name and generic-drug producer Teva Pharmaceutical Industries (TEVA 0.50%).
Over a five-year stretch, Teva dealt with a seemingly endless series of headwinds and miscues. The company grossly overpaid for generic-drug company Actavis, lost sales exclusivity on its top-selling brand-name drug for multiple sclerosis (Copaxone), suspended its once-lofty dividend, and has faced a laundry list of litigation ranging from bribery allegations to its role in the opioid crisis. In other words, there are legitimate reasons for Teva's stock to have underperformed in recent years. However, these grey clouds appear to be lifting.
The single biggest catalyst for Teva Pharmaceutical is putting opioid litigation in the rearview mirror. Teva entered into a nationwide $4.2 billion settlement that'll be spread over 18 years. While the final dollar figure might be a bit higher than some folks had expected, it removes a significant portion of the financial uncertainty that's held Teva's valuation down for so long.
The other core change for Teva Pharmaceutical is that its balance sheet has been steadily improving. When turnaround specialist Kare Schultz was hired as CEO in September 2017, Teva was sitting on more than $34 billion in net debt. But thanks to a combination of noncore asset divestments, belt-tightening, and utilizing operating cash flow to pay down debt, Teva's net debt has shrunk to a more reasonable $19 billion.
Teva's income statements also show that its fast-growing brand-name therapies are now outpacing the revenue lost to generic competitors of Copaxone. Tardive dyskinesia drug Austedo is on pace to reach or even top $1 billion in annual sales, while migraine-prevention therapy Ajovy is pacing closer to $400 million in yearly revenue.
With all of Teva's bad news accounted for, it stands out as a screaming buy at a multiple of just 4 times Wall Street's forecast earnings in 2023. Doubling this multiple to a still-inexpensive 8 over the next three years seems doable.
Lovesac
The Nasdaq bear market has also weighed down shares of furniture stock Lovesac (LOVE -2.45%), which is the second screaming bargain that can double your money by 2025.
Lovesac is contending with challenges that most retailers are facing at the moment. This includes dealing with historically high inflation, supply chain issues, rising inventory levels, and the many signs indicating the U.S. will fall into a recession at some point this year. All of these factors imply that traditional retailers will struggle in the coming quarters. Thankfully, Lovesac is anything but a traditional retailer.
Whereas most brick-and-mortar furniture retailers purchase their products from the same small group of wholesalers, Lovesac differentiates itself with its innovative products. Though it was originally well-known for its beanbag-styled chairs called "sacs," nearly 90% of net sales for the company now derives from sactionals -- modular couches that can be rearranged in a variety of ways.
Sactionals have more than 200 different cover choices, can be upgraded to include wireless charging and surround-sound systems, and are environmentally friendly. The yarn used in sactional covers is made from recycled plastic water bottles. In short, there's not another product on the market that can cover the bases of function, optionality, and eco-friendliness quite like sactionals.
The other unsung hero for Lovesac is its innovative omnichannel sales platform. Despite having brick-and-mortar stores in 40 states, this company is much more than its physical stores. During the pandemic, it was able to shift a significant percentage of revenue online, as well as rely on pop-up showrooms and various brand-name partnerships to increase sales. Having multiple channels to move its products has led to better inventory management and lower overhead expenses.
Investors should also take into account that Lovesac's products are targeted at middle-and-upper-income consumers. These are folks who are less likely to be adversely impacted by higher inflation or a recession.
With Lovesac sustaining a double-digit growth rate and on pace for more than $5 in earnings per share in fiscal 2026 (calendar year 2025), it absolutely screams "bargain!"
Image source: Getty Images.
PubMatic
The third screaming bargain that can double your money by 2025 is small-cap adtech stock PubMatic (PUBM -2.27%).
The Nasdaq bear market has been indiscriminate when it comes to weighing down advertising stocks over the past year. Since advertisers tend to pull back on their spending at the slightest hint of economic weakness, all ad stocks, including PubMatic, have taken it on the chin. But this short-term pain should lead to plenty of future gain for long-term investors.
The important thing for optimists is take a wider-lens look at the advertising landscape. While recessions are an inevitable part of the economic cycle, they generally last for no more than a couple of quarters. By comparison, economic expansions are usually measured in years. Ad-driven companies benefit from these disproportionately long periods of expansion.
Beyond macrofactors working in PubMatic's favor, the company finds itself at the center of the fastest-growing trend within the advertising space. Through 2025, global digital ad spend is expected to grow by a compound annual rate of 14%. Broken down further, mobile, digital video, and connected TV (CTV) programmatic ads are expected to produce compound annual growth rates of 20%, 24%, and 27%, respectively, through 2025. Since PubMatic generates a significant percentage of its sales from CTV, it's no surprise that its organic growth rate is handily outpacing the digital ad industry average.
As I've previously noted, PubMatic is strategically positioned to excel as one of the few remaining sell-side platforms (SSP). Thanks to consolidation among SSPs, PubMatic has risen toward the top of the pack as one of the premier programmatic ad platforms to help publishers sell their digital display space.
Furthermore, PubMatic made a genius decision, in hindsight, to design and build its cloud-based infrastructure. Not having to rely on a third party for its programmatic ad platform will allow the company to hang onto more of its revenue as it scales.
The icing on the cake here is that PubMatic ended September with $166.1 million in cash, cash equivalents, and marketable securities, with no debt. It has plenty of capital to continue innovating and is valued at less than 10 times Wall Street's forecast earnings for 2025.
