There are some certainties in life: Death, taxes, and a bull run following a downturn in the stock market. After the bloodbath investors experienced in 2022, it's not unreasonable to think equities can maintain the momentum they have had since the year started. And even if they don't, there is no doubt that a solid and sustained bull market will eventually come. There are plenty of stocks to choose from to profit when it does, but other corporations are best avoided.
Let's consider two stocks, one in each category: Pinterest (PINS -0.50%) and Novavax (NVAX -4.70%).
The stock to buy: Pinterest
The market is forward-looking. It often rises in anticipation of better times, even if the economy is still going through a rough patch. That's what could help lift companies like Pinterest. The social media giant has seen its revenue growth rates drop due to a decrease in ad spending fueled by economic challenges. But the online advertising space should eventually rebound as the macroeconomic issues subside.
But even amid challenges, Pinterest has performed relatively well. Last year, the company's revenue increased by 9% year over year to $2.8 billion. Note that even Meta Platforms, arguably the most prominent social media company in the world, saw its top line decline by 1% year over year in 2022. Pinterest's ability to keep its sales northbound is impressive. The company did so thanks to its squeezing more from its users.
Pinterest's average revenue per user (ARPU) for the year was $6.36, 10% higher than the previous fiscal year. Importantly, Pinterest ended 2022 with 450 million monthly active users (MAUs). It finally managed to end its streak of declining MAUs last year. There are lots of opportunities for Pinterest ahead. For instance, the company is seeking to boost its engagement and ARPU, especially in international markets where it lags what it is in the U.S. and Canada.
Another opportunity for Pinterest is one many social media companies are looking to pounce on, namely e-commerce. However, Pinterest's advantage is the visual flavor of its platform, where people go to find ideas and inspirations -- unlike other platforms that often focus on divisive issues such as politics. Advertisers know how an image can entice consumers to make a purchase.
Just think of all those commercials on television that make great use of pictures to sell products and attract customers. Pinterest aims to make every pin (or picture saved on its website) shoppable. The e-commerce market is growing rapidly, something that won't stop soon. That, combined with the eventual rebound of the advertising industry, will allow Pinterest to ride the next bull market. That's why Pinterest's shares are a buy before then.
The stock to avoid: Novavax
Novavax has been looking to make a name for itself in the coronavirus vaccine market, but it faced several headwinds. Most notably, the biotech encountered manufacturing problems for its vaccine that delayed the authorization of its candidate, Nuvaxovid, in the U.S. While the company eventually earned the nod in the country and many others worldwide, Novavax ran into another roadblock.
Namely, the company was counting on attracting mRNA vaccine skeptics since its product was created using more traditional methods. Alas, that didn't happen, and last year, Novavax had to decrease its sales guidance. Early in the year, it predicted revenue between $4 billion and $5 billion. By the time it released its third-quarter earnings, the company was projecting $2 billion in revenue -- quite a difference.
Novavax matched that revenue number for 2022, which increased by an impressive 73% compared to 2021. That sounds good. But there is a catch. Sales of COVID-19 vaccines will drop like a rock starting this year. And even though the booster market should survive for a while, the demand for vaccines could drop by 90%, according to Moderna's CEO Stéphane Bancel.
Companies such as Moderna and Pfizer, who already have a solid lead in this market, are likely to capture most of whatever remains of this market moving forward, leaving little for other players of which Novavax is just one. The unpredictability of this space makes Novavax a risky stock to invest in. Even the biotech's management agrees with that as they aren't sure that, given the funds currently at the company's disposal, it will remain open as a business through the next year.
Novavax's other key pipeline candidate, a combined coronavirus/flu vaccine, is unlikely to save the day, given it is only undergoing a phase 1/2 clinical trial. Is the company doomed to fall into irrelevance like other biotechs -- such as Inovio Pharmaceuticals -- that tried and failed to make a mark in the COVID-19 vaccine market? Maybe not, but the company's prospects don't look attractive, either, which is why investors should stay away.
