The stock market is bouncing back from the fierce price cuts in 2022's inflation-tainted crash. But the rising tide isn't lifting every boat equally. Some incredible companies with stellar long-term growth prospects are still hanging out in Wall Street's bargain bin.
On that note, let me show you why I expect a long run of wealth-building returns if you pick up shares of Twilio (TWLO 1.47%) and/or Netflix (NFLX -0.63%) at today's deeply discounted stock prices.
Twilio
Cloud communications expert Twilio has dipped a long way below its all-time high of February 2021. Despite a 27% gain so far in 2023, the stock price stands a hair-raising 85% below that lofty all-time high.
This might seem like a daunting decline, but savvy investors are seeing this dip as a prime opportunity. For example, growth investing phenom Cathie Wood of ARK Invest has been building her Twilio position with several buys this year -- and the stock remains one of her favorite plays on artificial intelligence (AI). Thanks to years of serving world-class consumer businesses like Uber and Airbnb, Twilio has built a unique collection of customer data that is ripe for AI-powered business analysis.
And let's not forget that Twilio's directly addressable market is pretty impressive, too. The communication platform-as-a-service (CPaaS) market, where Twilio's solutions reign supreme, is expected to nearly quadruple from $12.5 billion last year to $45.3 billion in 2027. Even a conservative estimate of Twilio's market share in 2028 would point to beefy double-digit annual revenue growth over the next five years. The company's annual revenue could close in on $12 billion by the end of that span.
The company faces some short-term headwinds, resulting in a slowdown of its revenue growth. However, these issues look like temporary potholes on the road to a promising future. And as Twilio continues to integrate AI into its platform, it opens the door to additional growth opportunities while also solidifying its leadership in the CPaaS market.
So I see lots of room for this stock to run higher. With its dual focus on AI and CPaaS, Twilio lays the foundation for a strong comeback. It may take a while to fully repair last year's price drop, but patience is a long-term investor's best friend. All things considered, this summer seems like a great time to follow Cathie Wood's example and grab some Twilio stock at an affordable price.
Netflix
Digital video giant Netflix was patching up its stock chart damage quite nicely until last week's second-quarter earnings report led to another setback. The company delivered muscular bottom-line earnings and 5.9 million net new subscribers. Free cash flow also soared to $1.3 billion and management painted a long-term picture of steady growth in cash profits. Yet, some investors wanted more and Netflix's stock price has dipped 11% lower since Wednesday evening's business update.
Even so, Netflix's shares have climbed an impressive 44% year-to-date. Some investors are taking their short-term profits off the table, and I think that's a huge mistake.
This company has reshaped the entertainment industry by sheer force of will and prescient business acumen -- more than once. After dominating the home video market in the era of physical DVD and Blu-ray disks, Netflix moved on to create a global video-streaming market from scratch. Now every media company worth its salt wants a streaming service of its own, hoping to copy Netflix's proven success in some way.
But Netflix isn't sitting still. The worldwide market growth still has a long way to go, and management keeps coming up with new ways to boost the top and bottom lines. Ad-supported subscription plans are reportedly more profitable than their ad-free alternatives -- so Netflix won't let new subscribers in the U.S., U.K., and Canada sign up for the basic no-ads plan anymore. Oh, and I think we'll see a revenue-generating version of Netflix's growing video gems catalog someday.
And management's long-term plan is still mind-bogglingly ambitious. Comparing the streaming opportunity to the rise of cable and broadcast TV in the 1950s, Netflix wants to lead a global revolution that makes linear TV services as obsolete as copper-cable phone lines and the horse-drawn buggy.
Those targets are a long way away, but Netflix is holding on to its sector-leading throne with both hands. You can buy this stock on any significant price dip, and the share price remains at least 32% below the highs of November 2021. Ergo, this looks like a great time to pick up Netflix stock on the cheap.
The goal line at the distant horizon looks great from here. Image source: Getty Images.
In a Nutshell: Netflix and Twilio look like no-brainer buys
While both Twilio and Netflix may appear to be underdogs due to recent stock market trends, don't be fooled. Their potential is considerable, thanks to their strong market presence, robust business models, and expansion opportunities.
The stock market has volatility in its DNA, but you should do well if you keep an eye on the long game -- and are ready to pounce on the opportunity when great stocks are changing hands far too cheaply.
