For more than a decade following the end of the Great Recession, growth stocks thrived. Historically low interest rates allowed innovative companies to borrow cheap capital and sustain double-digit growth rates.
But things changed in a big way last year. The Federal Reserve's hawkish monetary policy shift led to the fastest pace of rate hikes in more than 40 years. This was particularly bad news for growth stocks. The growth-focused Nasdaq Composite and Nasdaq 100 -- an index comprised of the 100 largest nonfinancial companies listed on the Nasdaq exchange -- lost a third of their value in 2022.
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But when there's fear and uncertainty on Wall Street, there's almost always opportunity for patient investors. Despite the Nasdaq 100 decisively falling into a bear market, bargains abound within the index. What follows are three Nasdaq 100 stocks that are no-brainer buys in April.
Sirius XM Holdings
The first Nasdaq 100 stock that's begging to be bought in April is one of the smallest components of the Nasdaq 100 by both share price and weighting: satellite-radio operator Sirius XM Holdings (SIRI -1.29%).
There are two prevailing headwinds that have caused Sirius XM stock to lose close to a third of its value over the past 10 weeks. To begin with, there's the growing concern the U.S. economy will dip into a recession. Ad spending is highly cyclical and among the first things to drop off at the slightest hint of economic weakness. Weaker ad spending is usually bad news for the radio industry.
The other potential worry, which builds on the previous point, is that auto sales will slow in 2023. Sirius XM gains self-pay subscribers via promotional subscriptions from new auto sales. If auto purchases were to decline, it's a pretty fair assumption that Sirius's promotional-to-self-pay conversion rate would fall on an aggregate basis.
Thankfully, these very short-term concerns are providing an ideal entry point for long-term investors to pounce.
While Sirius XM does face some level of competition from terrestrial and online radio, it's one of a small handful of legal monopolies in the United States. Since no other company is operating as a satellite-radio provider, Sirius XM usually commands exceptional subscription pricing power that allows it to outpace the prevailing rate of inflation.
But what's even more important than its legal monopoly status is how the company generates revenue. Whereas terrestrial and online radio providers generate the lion's share of their sales from advertising, only 20% of Sirius XM's revenue came from ads in 2022. A whopping 77% of its sales derived from its more than 34 million subscribers.
During economic downturns, subscribers are far less likely to cancel than advertisers are to pull back on their spending. In other words, it means Sirius XM is in better shape to deal with a recession than any other radio operator.
Given Sirius XM's highly predictable cost structure and historically cheap valuation (an estimated 13 times forward-year earnings), it makes for a clear-cut buy.
JD.com
A second Nasdaq 100 stock that stands out as a no-brainer buy in April is Chinese e-commerce company JD.com (JD 1.23%).
For the past three years, JD.com and its peers have been at the mercy of Chinese regulators and their handling of the COVID-19 pandemic. Whereas unpredictable lockdowns occurred in various countries around the world, China's were among the most stringent. These lockdowns curbed consumer purchasing activity and did quite the number on supply chains.
But things changed in December. Following mounting protests from China's citizens, regulators abandoned the zero-COVID strategy. Even though reopening China's economy will be a drawn-out process, as residents build up some level of natural or vaccine-based immunity to the virus, a reopened China is, ultimately, a very good thing for a retail-driven company like JD.com.
There had also been some recent concern that JD could be forced into a price war with the likes of Alibaba (BABA 0.09%), China's largest online marketplace. However, there's a sizable difference between Alibaba and JD that should allow the latter to grow its profits at a more impressive pace.
Alibaba generates most of its revenue from its third-party marketplace. It's effectively a middleman platform that connects buyers with third-party sellers. Meanwhile, JD.com brings in most of its revenue from direct-to-consumer sales. Similar to Amazon, JD is controlling its inventory and logistics, which gives it more leverage over its operating margin than Alibaba.
Something else that should intrigue investors is JD's recently announced plans to spin off its JD Property and JD Industrial units for listing on the Hong Kong stock exchange. Spinning off ancillary operating segments can unlock shareholder value, as well as make it easier for investors to understand how JD generates revenue and makes money. JD's spinoff plans come days after Alibaba announced it would split into six separate businesses.
Valued at a mere 12 times Wall Street's forward-year consensus earnings, JD.com looks like the perfect stock for opportunistic long-term investors.
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Warner Bros. Discovery
The third Nasdaq 100 stock that's a clear no-brainer buy in April is media stock Warner Bros. Discovery (WBD 0.97%). This is the company formed by the spinoff of WarnerMedia from AT&T in April 2022 and the subsequent merger of that content arm with Discovery.
To keep with the theme of this list, two headwinds are weighing down shares of Warner Bros. Discovery. To start with, ad spending has been causing some concerns. Legacy TV segments still rely meaningfully on advertising revenue, which looks like it's tapering off as fears of a U.S. recession grow.
The other factor holding Warner Bros. Discovery back is its one-time integration expenses. Thankfully, the vast majority of acquisition and restructuring costs the company dealt with in 2022 won't be on its income statements this year. Nevertheless, it led to an unsightly loss during a bear market, which made prospective investors think twice about owning shares of the company.
But as is also the theme among the three Nasdaq 100 stocks to buy in April, Warner Bros. Discovery's headwinds aren't anything to worry about for long-term investors. For instance, ad-driven businesses have a simple numbers game working in their favor.
Even though ad stocks tend to get taken to the woodshed during stock market corrections and bear markets, the U.S. economy spends a substantially longer period expanding than contracting. It means patient investors will be rewarded over time as ad spending expands in lockstep with the U.S. economy.
Another reason to be optimistic about this newly formed media company is its streaming potential. Although Warner Bros. Discovery's streaming division is currently losing money, the company closed out 2022 with more than 96 million global direct-to-consumer subscribers. That's up about 16 million since the end of September 2021. With a monthly price hike announced for HBO Max subscribers in January 2023, Warner Bros. Discovery is taking the appropriate steps to make this fast-growing segment profitable within the next couple of years.
Furthermore, combining WarnerMedia with Discovery is expected to eliminate operating redundancies and save the new media entity billions. Management expects this merger to eventually result in at least $4 billion in annual cost savings.
Based on the company's current share price, it wouldn't be a surprise if Warner Bros. Discovery is valued at a single-digit price-to-earnings ratio come 2025. That makes it a phenomenal bargain for patient investors.
