Many stocks took a serious beating in 2022 and early 2023. The trend may continue in the coming days, considering the U.S. Consumer Price Index (CPI, a metric to gauge inflation) rose by 6.4% year over year in January 2023, higher than the forecast growth of 6.2%. A higher-than-expected inflation rate will allow the Federal Reserve to maintain higher interest rates for a longer period, thereby hurting the stock market.
Although stock market corrections are undoubtedly painful, they also offer opportunities for long-term retail investors. Let's assess why Cloudflare (NET +1.11%), Visa (V +0.56%), PayPal (PYPL +1.49%), and Airbnb (ABNB +2.96%) could prove to be attractive long-term buy-and-hold picks now.
1. Cloudflare
The first stock to pick in February 2023 is leading cloud-native networking and cybersecurity player Cloudflare. The company reported stellar financial performance in the fourth quarter (ending Dec. 31, 2022), with both revenue and adjusted net income topping analysts' expectations.
NYSE: NET
Key Data Points
Cloudflare's edge-based content delivery network extends across 285 cities in over 100 countries and reaches 95% of the global internet-connected population within 50 milliseconds.
Thanks to its network's reach, speed, reliability, and security, the company continued to attract high-value customers even in a difficult macroeconomic environment. At the end of Q4, the company was serving 2,042 customers who spend more than $100,000 annually on its services (large customers), up 44% on a year-over-year basis. With Cloudflare earning more than 60% of its revenue from large customers, the business is relatively recession resistant.
The company also reported a Q4 dollar-based net retention rate of 122%, highlighting its cross-selling and upselling success even in the current difficult times. Additionally, Cloudflare was free-cash-flow positive in Q4 ($33.7 million), a major plus in the high-interest economic environment.
Cloudflare is currently targeting a total addressable market worth around $135 billion. With an annual run rate approaching $1 billion, there is still much scope for future growth.
2. Visa
The leading electronic payment processor, Visa, is the second phenomenal stock to buy.
NYSE: V
Key Data Points
First, the company is a major beneficiary of the secular shift from physical cash to cashless transactions. Second, Visa's card processing network currently powers more than 40% of global cashless payments, with the help of around 3.9 billion credit and debit cards.
Increasing card usage has been driving more and more merchants to accept card payments, in turn boosting further adoption of cards. This network effect emerged as a major competitive advantage for Visa.
Third, since the company does not issue its own credit cards, like some other payment processors, it is not exposed to the risk of potential loan losses, making it relatively resilient to economic downturns.
Finally, Visa is highly profitable, with both a free-cash-flow margin and a net income margin of over 50%.
3. Paypal
The third impressive stock to pick in February 2023 is leading digital payments player PayPal, another major beneficiary of the increasing adoption of alternate payment methods over physical cash. The company operates a large, closed-loop online payment network for merchants and consumers to interact with each other.
PayPal has 435 million active accounts on its platform -- 400 million customer accounts and about 35 million merchant accounts. The company benefits from significant network effects due to its broad network reach.
NASDAQ: PYPL
Key Data Points
While reduced retail spending and slower e-commerce growth affected the pace of growth of PayPal's active account base in 2022, the company managed to improve user engagement, as shown by the 13% year-over-year rise in transactions per active account.
PayPal also expects its profits to increase in 2023, thanks to its focus on cost-cutting initiatives, such as reducing non-transaction-related expenses and laying off 7% of the workforce in the coming weeks.
PayPal generated $5.1 billion in free cash flows and returned $4.2 billion to shareholders in 2022. Coupled with a strong balance sheet (cash of $15.9 billion and debt of $11.6 billion), the company's stock seems worth buying now.
4. Airbnb
The final top-notch stock for February 2023 is the vacation rental and experience provider Airbnb, already a respected brand in the travel industry.
The company reported better-than-expected Q4 earnings results (ending Dec. 31, 2022) and the first full year of generally accepted accounting principles (GAAP) profit -- an achievement at a time when skyrocketing inflation has reduced consumer discretionary spending.
NASDAQ: ABNB
Key Data Points
Airbnb is benefiting from improving cross-border travel demand in the reopening economy. Additionally, increasing preference for non-urban locations and unique experiences has helped attract guests.
The company is also focusing on long-term stays (people with remote or hybrid work) and subletting apartments.
Further, thanks to Airbnb's capital-light business model, the company can rapidly scale its property network with minimal capital by adding more hosts -- something impossible for conventional hotels. The company also benefits from the network effect as more satisfied customers drive the addition of more unique properties to its network, in turn attracting even more guests.
