Stocks have gone on a tear in recent months, with growth shares leading the way. Since the start of 2023, the S&P 500 index is up 14%, while the tech-heavy Nasdaq Composite has risen nearly 38%. The recent rise in stocks has many wondering if we are in a new bull market.
While stock prices have surged, uncertainty remains in the broader economy. The Federal Reserve recently paused its aggressive interest rate hiking cycle. However, the federal funds rate is at its highest level since 2007, and concerns remain about how higher interest rates could impact the economy.
If weakness in the economy were to lead to a stock market correction, it could be an excellent opportunity to add shares of Meta Platforms (META 0.43%), Roku (ROKU -10.29%), and Visa (V -0.23%).
1. Meta Platforms
Meta Platforms dominates digital advertising thanks to its family of apps, which includes Facebook, Messenger, WhatsApp, and Instagram. According to Insider Intelligence, Meta owns a 20% digital advertising market share. Only one company, Alphabet's Google, is ahead of it with a 28% share.
Last year, Meta struggled as a challenging macroeconomic environment led many companies to cut back on advertising spending. While its ad impressions grew by 18%, the average price per ad declined by 16%, and revenue grew by just 1%. The company has turned things around thanks to its plan to make this the "year of efficiency." It announced 11,000 layoffs in November, and will cut another 10,000 jobs this year.
One concern investors should have about Meta is the potential for a recession later this year or early next year. If we see a recession, companies could cut advertising budgets further to keep costs low. If that were to happen, a sell-off in Meta stock could make for an excellent buying opportunity.
While near-term economic weakness could hurt it, longer-term trends favor the business. According to eMarketer, digital ad spending could grow 10% annually through 2027, and Meta is in a prime position to capitalize on that growth.
2. Roku
Roku dominates the streaming device industry and has a 50% share of the market, according to Pixalate. The company has nearly 72 million active accounts on its platform.
Roku stock has undergone a significant revaluation over the last few years. The company had an excellent run during the pandemic -- revenue grew 55% in 2021, and the company posted its first profitable year since going public. Since peaking at nearly $491 per share in August 2021, however, Roku stock has plummeted 87%.
Roku suffered from the slowdown in advertiser spending last year, but its ballooning expenses are what really dragged it down. While revenue grew 13% last year, expenses were up 68%, and it swung from a net income of $242 million to a net loss of $498 million. An economic slowdown and ad spending pullback would undoubtedly impact the business and stock price, creating an excellent buying opportunity for long-term investors.
Looking further down the road, Roku has an opportunity to capitalize on its home-grown streaming service, and is looking to make its platform more advertiser-friendly. According to Transparency Market Research, the global connected TV market is projected to grow 13% through 2031. Roku is well-positioned to take advantage, making it a solid stock to buy in a market sell-off.
3. Visa
When it comes to processing payments and moving money across the globe, no one does more business than Visa. In 2021, Visa processed 244 billion transactions totaling $13.5 billion in volume. Its next-closest competitor, Mastercard, processed $7.7 billion across 140 billion transactions.
Visa has a resilient business that can do well during times of economic expansion or inflation. That's because the company makes money on a percentage of the payment volume moving through its network. Another great thing about its business is that it is asset-light, leading to stellar profit margins averaging 46% over the past decade, and network effects keep it in a strong competitive position.
The one thing that could hurt its earnings in the short term would be a slowdown in economic activity and a pullback in consumer spending. If this brings the stock price down, it could be an excellent buying opportunity. According to Allied Market Research forecasts, global credit card payments revenue will grow 8.5% annually through 2028, providing a long-term tailwind for Visa's dominant payments business.
