While a few sectors of the market evaded the steep drops many tech and growth-oriented stocks experienced over the past year, relatively few companies were entirely spared. In such instances, it's important that investors learn to discern between discounted stocks that are justifiably down and those stocks that represent strong companies that just got caught up in the broader selloff and will keep performing well over the long term. It's even more important when the investor only has a limited amount available to invest.
If you have $1,000 to invest in stocks right now -- money that isn't immediately needed for expenses, to pay off short-term debt, or to build up an emergency fund -- here are two bear market buys you won't want to overlook in 2023.
1. Airbnb
Airbnb's (ABNB 1.83%) share price performance has been underwhelming over the past two years (although it's up 33% from lows hit in late December 2022), but the underlying business continues to shine. Revenue growth is strong, profits are growing steadily, and cash-flow generation is soaring. The company recorded more than $3 billion in free cash flow in the 12 months leading up to the end of the third quarter of 2022. However, Airbnb's recent streak of strong quarterly financials isn't just due to favorable year-over-year comparisons.
The third quarter of 2022 saw the company record just shy of 100 million nights and experiences booked on its platform, generating gross booking value of $16 billion. Meanwhile, revenue, net income, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at respective amounts of $3 billion, $1.2 billion, and $1.5 billion, for the three-month period. Taking a look at these four metrics -- gross booking value, revenue, net income, and adjusted EBITDA -- each represented respective increases of 31%, 29%, 46%, and 32% from the third quarter of 2021. And evaluating those same four metrics compared with pre-pandemic levels in the third quarter of 2019, they were up by approximate amounts of 54%, 70%, 260%, and 283%, respectively.
NASDAQ: ABNB
Key Data Points
Cross-border travel recovery has certainly been a key factor here in Airbnb's robust financial rebound, but it isn't the only driving force for the business at play. The increasing emergence of remote work employment and the blurring lines around work, life, and travel are pushing people to explore new opportunities to live in different places for weeks, months, or longer at a time. Instead of the traditional lease arrangement, the ability to book an Airbnb in your location of choice poses an attractive opportunity for consumers with all types of travel needs.
And in a difficult economy, more people are looking for ways to make money, so hosting an Airbnb can be a logical way to make extra income for many. In the first half of 2022 alone, hosts earned a whopping $21 billion on the platform. Even if travel spending slows down in the near term, the long-term outlook for the travel industry and the rise of remote work are both tremendous catalysts that Airbnb is well positioned to grow from over the long haul.
2. Etsy
Etsy (ETSY 4.70%) has become a go-to e-commerce website for anyone searching for handmade, one-of-a-kind, and vintage items to buy. You might think, given the multitrillion-dollar opportunity that the broader e-commerce market presents, that there isn't much market momentum for this specialty goods niche. Those thoughts would be wrong.
According to management's estimates, the Etsy platform operates in a rapidly expanding total addressable market, one that jumped from $1.7 trillion in 2018 to roughly $2 trillion as of 2021. The online portion of this market alone is estimated to be valued at $466 billion. Taking Etsy's 2021 gross merchandise sales of roughly $14 billion into account, this means that the company has only penetrated about 3% of its total addressable market potential in the online side of this space.
NYSE: ETSY
Key Data Points
Investors may have been somewhat discouraged by Etsy's third-quarter performance, but a closer look reveals a more nuanced outcome. The company's revenue grew at a solid clip of 12% year over year to $595 million. While gross merchandise sales of $3 billion were down by just around 3% year over year, largely due to foreign currency weaknesses, this metric was actually up 150% compared with the same quarter in 2019. The company was unprofitable in the quarter because of a noncash impairment charge it took to write down the value of pandemic-era acquisitions, but it reported adjusted EBITDA of $168 million for the three-month period while closing the quarter with $1.1 billion in cash and investments.
Etsy's capital-light business model is another differentiating factor from some e-commerce companies, as it doesn't warehouse or fulfill the products sold in its platform. This gives it an advantage as it continues to move back toward profitability and build upon its long-term growth strategies. Even if a recession causes consumers to slow spending, people might be even more apt to shop from small businesses and buy preowned or handmade goods. For investors taking a position of three to five years or longer, Etsy still looks like a solid way to play the potential of the e-commerce space with incredible untapped market opportunity left to explore.
