2023 has been a good year for stocks. Year to date, the S&P 500 is up 14% and the Nasdaq Composite is up 29%. These results have been a welcome respite after these indexes fell 19% and 33%, respectively, in 2022. Even with the strong performance this year, some stocks are still trading below their recent highs and now present a compelling buying opportunity.
To be clear, not every beaten-down stock is worth buying. Investors still need to do their due diligence to determine which fallen stocks represent strong businesses. But for those companies that will turn things around, these low points can be the driver of market-beating returns in the future.
Let's dig in and see why these three growth stocks are a buy right now.
Walt Disney
It may be surprising to learn that over the last five and 10 years, Walt Disney (DIS 0.68%) stock has lagged behind the S&P 500's return by a significant amount. The challenges the company has faced over the past few years have taken their toll on Disney's stock price. Today, the shares trade 57% off their early 2021 high.
NYSE: DIS
Key Data Points
This makes some sense when you consider how many challenges the business faced at once. Disney launched its cash-burning streaming service Disney+ in late 2019, there was a global pandemic that shuttered its theme parts and cruises for many months, and it went through two CEO changes. Each of those events alone would likely cause some trepidation on Wall Street. Taken all at once, it's impressive that the stock hasn't fallen more.
The good news is that Disney has shown steady improvement over the last several quarters, which gives some hope to shareholders that the worst is behind the company. For example, the parks and experiences segment, which is made up of all the domestic and international theme parks, cruises, and other attractions, grew revenue by 13% year over year in the most recently reported quarter. Operating income in this segment increased by 11%.
While the media and entertainment segment has seen its revenue decline sequentially over the last three quarters, its operating income has been improving. More important is the approximately $1 billion improvement in operating income in the direct-to-consumer business. This is important because this has been a drag on profitability due to the high costs of content for streaming services.
With parks continuing their pandemic recovery and the operating income improvements in the media business, Disney seems positioned for brighter days ahead.
Target
Last summer, Target (TGT 0.60%) saw its stock plummet as it struggled with its inventory. Consumer spending shifted more rapidly than the company anticipated, leaving Target with many large, bulky items it needed to discount to clear out. This impacted margins and tanked the stock. Today, Target trades 50% lower than its late-2021 high.
NYSE: TGT
Key Data Points
When Target recently reported its Q2 2023 results, the challenges were still apparent. Revenue was down 5% year over year, as was comparable sales growth. Management pointed to softening consumer discretionary spending as the reason for the top-line decline.
However, there were some bright spots. Inventory was down 17% year over year, an indication that the inventory challenges the company faced are now in the past. Additionally, operating income, net income, and free cash flow have all shown improvement over the trailing 12 months.
TGT Operating Income (TTM) data by YCharts
This has helped smooth out the lumpy performance Target sometimes has from quarter to quarter, and shows that profit and cash flows are heading in the right direction. Target still has work to do to get back to where it was before the pandemic, but these are good signs.
Boston Omaha
Much like Disney and Target, conglomerate holding company Boston Omaha (BOC +1.20%) has seen its stock fall on hard times. The stock is 65% off its early 2021 high. What's different in the case of Boston Omaha is that its business segments have been growing throughout -- even if the bottom line dips in and out of profitability, which can happen with growth companies.
NYSE: BOC
Key Data Points
Boston Omaha has four main businesses: billboards (it's the 6th largest owner in the U.S.), broadband, property and casualty insurance, and asset management. The company likes these as pillars for the business because of their revenue growth and cash generation potential. In the recently reported second quarter of 2023, each of these segments saw strong year-over-year revenue growth.
| Segment |
Q2 2022 |
Q2 2023 |
Change |
|---|---|---|---|
|
Billboard revenue |
$9.8 million |
$10.8 million |
10% |
|
Broadband revenue |
$8.1 million |
$8.7 million |
8% |
|
Insurance revenue |
$3.0 million |
$4.5 million |
52% |
|
Asset management revenue |
$0 |
$145,493 |
- |
Data source: Boston Omaha
Of particular interest is the asset management revenue. This part of the business had previously been included in "Investment and Other Revenue" so this was the first quarter revenue was broken out separately. In this segment, the company owns investments and minority ownership in a number of businesses and does so alongside outside investors. One example is Boston Omaha Build For Rent, which is building rental homes that include fiber from Boston Omaha's broadband business.
As of the end of 2022, the asset management portfolio had $157 million in total assets and had generated $90 million in profits for the company. Results in this segment will be choppy, but the earnings can be used to fuel other parts of the business.
