It's not a good feeling to see your savings lose value when the markets drop. But it's when stocks go down that investors get the chance to make a lot of money on the next upswing. Of course, you have to buy the right stocks.
There are plenty of strong companies that saw their share prices tumble last year. Here's why three Motley Fool contributors believe Shopify (SHOP -2.37%), Amazon (AMZN -1.64%), and Farfetch (FTCH) are no-brainer buys right now.
This platform service for merchants keeps growing
John Ballard (Shopify): Shopify stock crashed with the market sell-off last year, but e-commerce isn't going anywhere. It's an enormous market valued at over $5 trillion, and eMarketer expects it to grow to more than $7 trillion over the next several years. In fact, while the stock was tumbling, Shopify was still growing.
Shopify has an enormous runway for more growth. Its penetration of U.S. e-commerce stands at just 10%, but the company's new-product development should increase its penetration even further.
One potential game changer it launched was Shopify Markets, which makes it easier for small businesses to expand internationally. Shopify Markets taps into a huge opportunity: Nearly half of Shopify's merchants are based outside North America, which drove 27% of the company's revenue in the fourth quarter.
Shopify also continues to simplify logistics and shipping on behalf of its merchants. The platform acquired Deliverr last year to provide merchants with better inventory management across different sales channels and to better align supply with demand. Since integrating Deliverr into the Shopify Fulfillment Network, the company has seen a 40% increase in orders per merchant.
In a quarter when retail sales were under pressure from inflation and other macroeconomic headwinds, Shopify's merchants grew sales 21% year over year, excluding currency changes, during Black Friday and Cyber Monday. This significantly outperformed the broader e-commerce market, which indicates how well Shopify is connecting merchants with buyers in a challenging retail environment.
Given the company's massive e-commerce opportunities, it's difficult to imagine investors not making money with this stock over the next 10 years.
Do winners keep on winning?
Jennifer Saibil (Amazon): I'd like to say that Amazon is the classic case of "winners keep on winning," a well-known aphorism about life in general and the stock market in particular. But with the stock still down 33% over the past year, well below the S&P 500's 6% loss, does it apply to Amazon?
The short answer is yes. Stock market performance is never linear; there are ups and downs, usually throughout the trading day, and certainly over days, weeks, months, and years. Any "winner" has stock-price losses, too. And most winners experience turbulence in operations at some point along their journeys.
Amazon is a huge company with many moving parts and a risk-loving culture that allows it to achieve incredible growth, but that also means that at times, it faces pressure from its decisions. With its size, it also has more exposure to economic changes.
That's why it benefited enormously at the beginning of the pandemic, when shoppers overwhelmingly chose its platform to provide their essentials, and sales growth skyrocketed. Now its on the other side of that.
It is cutting down on the extraordinary infrastructure developments it made over the past few years. At the same time, it is facing rising costs and slowing demand across most of its segments, while keeping up its pipeline of new products, services, and innovations. Its agility and progress throughout the process make it a winner in my view.
To focus on some of the positives, it's still posting sales growth. Revenue increased 9% year over year in the 2022 fourth quarter and the full year. Amazon Web Services is still demonstrating robust growth, with a 20% increase in 2022. Operating income remains positive, coming in at $2.7 billion in the fourth quarter.
Investors are still pessimistic about Amazon in the near term, and it doesn't look like things are going to turn around so quickly. But the long-term potential remains incredibly bright, and when things do turn around, you'll regret not buying Amazon stock at this price.
Down, but not out
Jeremy Bowman (Farfetch Holdings): If you're looking for a dip to take advantage of, Farfetch looks like a great opportunity right now. The luxury fashion e-commerce company is down 94% from its peak early in 2021.
The good news is that the stock has been hit by temporary challenges rather than a fundamental issue with the business.
Among those issues are weak demand in China because of COVID-19 restrictions, the closure of its Russia business over the war in Ukraine, difficult comparisons after a boom earlier in the pandemic, the inflationary and recessionary economy in much of the world, and the shift in consumer spending away from goods to services.
Farfetch's recent results haven't been inspiring. Revenue in the fourth quarter was down 5% (up 2% in constant currency) to $629 million, while gross merchandise volume fell 12% (down 5% in constant currency) to $1.1 billion.
That slowdown hurt the bottom line as gross margin decreased by 600 basis points to 41.1%, and it had a loss of $35 million based on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Reflecting the execution challenges the company is facing, Farfetch has reorganized its management team and cut its costs. It added a new chief fashion and merchandising officer, a new president of the Americas region, and a new vice president for community and web3.
It also said its chief brand officer and chief growth officer would be leaving the company, and that its chief financial officer would depart by the end of the year.
Despite its recent woes, the company still has a lot of potential, especially with its Farfetch Platform Services business, which functions like a Shopify for luxury brands, helping them do everything they need to sell their products online.
The company should return to growth in a healthier economy, and at less than $5 a share, the stock looks too cheap to ignore.
