Last year was both financially and emotionally trying on investors. All three major U.S. stock indexes turned in their worst performance in 14 years, with the growth-focused Nasdaq Composite (^IXIC -0.27%) bringing up the caboose. The index responsible for lifting the broader market to record highs in 2021 lost a third of its value last year.
While nothing quite prepares investors for a major stock index shedding 33% of its value in 12 months, there is a silver lining: No matter how painful short-term downdrafts are in the market, they're always, eventually, erased by a bull market rally. For investors with time on their side, bear markets are a golden buying opportunity.
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Although growth stocks have been in focus for more than a decade, value stocks are looking particularly intriguing during the Nasdaq bear market. What follows are three tantalizing value stocks that have the catalysts necessary to double your money by 2026.
Walgreens Boots Alliance: Forward-year price-to-earnings ratio of 7.7
The first phenomenal value stock with triple-digit return potential for investors over the next four years is pharmacy chain Walgreens Boots Alliance (WBA -2.16%).
For the majority of healthcare stocks, recessions and economic downturns are mostly a nonevent. Since no one can control when they become ill, there's always a need for prescription drugs, medical devices, and a variety of healthcare services.
But because Walgreens is dependent on its brick-and-mortar locations for most of its revenue, lockdowns tied to the COVID-19 pandemic walloped its operating results. With that tough period now in the rearview mirror, investors can scoop up shares of Walgreens at a discount.
Aside from a once-in-a-century event that's made Walgreens Boots Alliance stock inexpensive, the company is also undertaking a multiyear transformation designed to lift its organic growth rate, boost operating efficiency, and increase customer loyalty. One way it's doing this is by spending big on digitization efforts. Promoting the convenience of online sales, as well as refining its supply chains, are simple ways the company can promote organic growth and improve its operating margin.
Additionally, Walgreens is steadily shifting more of its net sales toward healthcare services. It's become a majority owner in VillageMD, with the duo opening 200 colocated, full-service health clinics, as of Nov. 30, 2022. The expectation is for 1,000 of these clinics to be open in more than 30 U.S. markets by the end of 2027. These are physician-staffed clinics designed to draw repeat customers and build rapport at the grassroots level. They can also provide a nice lift to a generally low-margin operating model.
If you need one more good reason to buy Walgreens during the Nasdaq bear market, consider this: The company has increased its base annual payout for 47 consecutive years. Walgreens' 5.2% yield will get investors over 20% of the way to doubling their initial investment over the next four years.
Lovesac: Forward-year price-to-earnings ratio of 11.7
This is as good a time as any to mention that growth stocks can be value stocks, too. That's why furniture company Lovesac (LOVE 1.54%) stands out as an amazing deal at a forward price-to-earnings ratio of 11.7.
Let me stop you before your mind wanders too far. Yes, the furniture industry is generally slow-growing and boring. Lovesac is neither of these, with its furniture, omnichannel sales platform, and customer focus completely disrupting the industry.
At one time, beanbag-styled chairs known as "sacs" were Lovesac's core product. But through the first nine months of fiscal 2023, 89.9% of net revenue came from selling "sactionals" -- modular couches that can be rearranged a multitude of ways. These sactionals offer functionality, optionality (over 200 cover choices), and are ecofriendly. The yarn used in the covers for sactionals is made using recycled plastic water bottles. There's simply nothing that compares to Lovesac's top-selling product.
Although Lovesac has traditional retail stores in 40 states, it's far from a traditional brick-and-mortar retailer. During the height of the pandemic, it was able to move nearly half of its sales online, while allowing pop-up showrooms and brand-name partnerships to pick up the remainder of the sales lost by physical showrooms. Having multiple sales channels is a tool that's lowered the company's overhead expenses and lifted its operating margin.
Lastly, Lovesac tends to target a more affluent core audience (middle-and-upper-income millennials, to be exact). These are folks who are less likely to be adversely impacted by inflation or mild economic downturns. In short, Lovesac is better insulated to handle economic disruptions than the traditional furniture industry.
Lovesac's sustained double-digit sales growth rate, and its expected doubling in earnings per share through 2026, according to Wall Street estimates, make it a screaming deal during the Nasdaq bear market.
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Teva Pharmaceutical Industries: Forward-year price-to-earnings ratio of 4.1
The third tantalizing value stock that can double your money during the Nasdaq bear market is brand-name and generic-drug developer Teva Pharmaceutical Industries (TEVA -0.42%). Note: While Teva is reporting its fourth-quarter and full-year operating results before the opening bell today, all figures discussed below are based on the company's third-quarter results.
Whereas COVID-19 was a huge headwind for Walgreens Boots Alliance and Lovesac, Teva has been its own worst enemy over the past six years. It grossly overpaid for the Actavis buyout and ballooned its outstanding debt. It's also dealt with the loss of sales exclusivity on its top-selling brand-name drug (Copaxone for multiple sclerosis), and has faced a litany of litigation tied to its role in the opioid crisis.
Teva's biggest catalyst is that it's putting these miscues in the rearview mirror. Last year, the company forged a $4.2 billion nationwide settlement stemming from its role in the opioid crisis. While this was a higher dollar amount than some shareholders (myself included) had expected, it's spread out over 18 years. With this gray cloud removed, investors can focus their attention on Teva's operations, rather than its legal department.
Losing sales exclusivity to Copaxone isn't as much of a drag anymore, either. Sales growth from tardive dyskinesia drug Austedo and migraine drug Ajovy are more than outpacing revenue lost to generic forms of Copaxone. As of November, Austedo was on pace to possibly deliver its first full year of blockbuster sales (i.e., revenue in excess of $1 billion).
Teva's success is also a function of having a turnaround specialist as CEO. Since taking the lead role in 2017, Kare Schultz has reduced the company's net debt from north of $34 billion to $19 billion, as of Sept. 30, 2022. Divesting noncore assets, reducing operating expenses, and using the company's abundant cash flow to pay down debt has been the winning formula.
If Teva can successfully put all of these challenges behind it, a doubling of its earnings multiple to 8 by 2026 seems perfectly doable.
