There's no shortage of uncertainty in the stock market these days.
Just when you thought that interest rates and inflation were the most pressing concerns, all of a sudden the economy is in the midst of a new banking crisis with the second and third-largest bank failures in U.S. history happening just this month.
Against that backdrop, you might think it's a bad time to buy stocks, but investing during bear markets almost always pays off over the long run. Keep reading to see two stocks that Wall Street is ignoring that could be big winners when the economy rebounds.
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1. Farfetch
Like some other e-commerce stocks, Farfetch (FTCH -2.06%) soared during the pandemic before crashing over the last two years as the growth story for the e-commerce luxury fashion company seems to have fallen apart.
The stock is down 94% from its peak in early 2021 and its recent results show why. Revenue fell 5% to $629 million in the fourth quarter, and gross merchandise volume was down 12% to $1.14 billion.
Not surprisingly, the bottom-line performance also suffered as last year's $36.1 million adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) flipped to a loss of $34.6 million in Q4 2022.
However, Farfetch is facing a number of external challenges that help explain its struggles. Due to the war in Ukraine, it pulled out of Russia, where 6% of its gross merchandise value (GMV) came from, and the company has struggled in China, its second-biggest market, due to COVID-19 lockdowns. Meanwhile, e-commerce businesses in general have done poorly after the pandemic boom as consumer spending shifted back to traditional channels as well as services like restaurants and travel.
Still, it's a mistake to think the Farfetch growth story is over. The company has a unique business model that includes an e-commerce marketplace, wholly owned fashion businesses, and a Shopify-like service, Farfetch Platform Services (FPS), which handles the e-commerce side of the business for luxury brands.
Farfetch has also restructured its executive leadership team to better align each of its three business pillars (marketplace, FPS, and brand platform), and make each team more accountable.
At this point, Farfetch stock has fallen so far -- trading at a price-to-sales ratio of less than 1 -- that it has a lot of upside potential, and its performance should improve once the economy turns around.
2. Williams-Sonoma
Another sleeper stock is Williams-Sonoma (WSM 0.36%), the upscale home goods company and parent of West Elm and Pottery Barn.
Like other home goods retailers, Williams-Sonoma posted blowout results through the pandemic, but that momentum has carried it further than most of its peers, who saw sales growth stalled in 2022.
The company finished the year with 6.5% comparable brand growth and an operating margin of 17.3%, an enviable percentage for almost any retailer.
Williams-Sonoma did experience some macro headwinds in the fourth quarter as comparable brand sales slipped 0.6%, and the company called for flat revenue growth in 2023 and for operating margin to fall to 14% to 15%.
Over the long term, the company is sticking with its guidance of mid-to-high-single-digit revenue growth and an operating margin above 15%.
While Williams-Sonoma has been around for generations, the company reinvented itself for the modern era. It now brings in a majority of its revenue from the e-commerce channels, and it's tapped into other growth vehicles such as an e-commerce marketplace that allows other select brands to sell on its platform, and a business-to-business channel that works with interior designers, architecture firms, and others, helping to tap into a new customer base.
Management just rewarded investors with a 15% quarterly dividend increase to $0.90 per share, and the company has been steadily buying back stock, reducing shares outstanding by 10% in 2022.
Finally, Williams-Sonoma also trades at a bargain price right now, at a price-to-earnings ratio of just 7.3. While the company expects profits to dip slightly in 2023, the long-term opportunity still looks bright for Williams-Sonoma.
