The Nasdaq Composite has come roaring back in 2023 and is crushing the performance of the S&P 500 and Dow Jones Industrial Average. But a lot of Nasdaq stocks have been selling off this year or are still down big off their highs.
Netflix (NFLX 0.17%), Enphase Energy (ENPH 2.31%), and Starbucks (SBUX 0.93%) are three growth stocks that are down big but are worth buying now. Here's why.
Image source: Getty Images
It's Netflix's world. Other streamers are just living in it
Netflix stock is up over 60% compared to its brutal summer 2022 sell-off. But it's still down over 45% from its all-time high and has rather quietly lost 10% of its value in the last three months.
NASDAQ: NFLX
Key Data Points
While it is clear in hindsight that Netflix should never have gotten as beaten down as it did last summer, investors have been left wondering what a good price for this stock is and whether or not it is still a growth stock.
Netflix is certainly not the growth stock it once was, but that is arguably a good thing for long-term investors.
NFLX revenue (TTM) data by YCharts. TTM = trailing 12 months.
Revenue is at an all-time high, but ttm net income has been slowing and is ticking down from the peak in Q4 2021. Cash from operations is up over 300% in the last five years. Netflix is now a seasoned veteran in the streaming space.
And with so much more competition from the likes of Walt Disney (DIS 1.24%), Amazon, Apple, and others, it's better that Netflix is a cash cow that's generating gobs of profit instead of a barely profitable company that is relying on top-line growth alone.
The company's biggest advantage is that it has a business model that works. It sounds simple, but this isn't something that other streaming companies have been able to replicate, at least not yet.
Rivals such as Disney+ are still unprofitable and are struggling to find the balance between content spending and what kind of content will boost viewer engagement. The struggle to find profitable content has been so bad that Disney is doubling down on its parks business since streaming hasn't panned out as investors initially hoped. I have every bit of confidence that Disney+ will be a force to be reckoned with over time, but the reality is that it's just not there yet.
Netflix is in a league of its own. The growth is still there, but at a far lower rate than in past years. However, Netflix is now consistently profitable and generates large amounts of cash flow. In this vein, it's a more stable company. Netflix needs to prove to investors it can turn the corner and resume growing its bottom line. But in the meantime, the valuation has never been more reasonable, and the company has the content needed to justify price increases.
Netflix remains the top streaming stock and a top growth stock to buy now.
Renewable energy's top growth stock is on sale now
The Invesco Solar ETF (TAN 1.58%), the go-to barometer for the solar energy industry, reached a new 52-week low on Friday, erasing most of the gains over the last three years.
It's been a brutal year for solar companies, and for good reason. The pace of climate change isn't slowing down, but investor appetite for capital-intensive solar projects, many of which are funded with debt, has taken a hit with today's high interest rates.
At least in the short term, energy investors prefer to go with the proven winners, which are oil and gas companies that can fund growth with cash from a reliable and secure energy source.
Many oil stocks are hitting all-time highs. Meanwhile, Enphase Energy stock is down a brutal 54.7% year to date.
NASDAQ: ENPH
Key Data Points
In many ways, the sell-off is reminiscent of what Netflix went through last summer. Like the streaming platform, Enphase was a hypergrowth stock that has transitioned to a fast (but not hypergrowth) stock backed by high margins, sizable cash-flow generation, and profits.
Growth is likely to keep slowing for Enphase in the short term, but it has done a masterful job growing its bottom line and sustaining high margins, especially for a company that mostly sells physical products -- namely, solar inverters that convert DC energy to the AC energy used in households.
The stock now sports a reasonable valuation, which is something that couldn't be said over the last few years. With the long-term tailwinds stronger than ever for the energy transition, Enphase is certainly worth a look.
Starbucks is a worthy dividend stock to buy and hold forever
Over the last decade or so, Starbucks has undergone an identity shift from a rip-roaring growth stock disrupting the coffee and beverage industry to a more stable stock with moderate growth and a nice dividend. Starbucks is following the classic path of many mature companies. After all, there are only so many new stores that Starbucks can build without being borderline reckless with its capital allocation.
Today, a big part of the Starbucks investment thesis centers around the dividend. On Sept. 20, management announced a more than 7% increase in the quarterly dividend to $0.57 per share. The payout has nearly doubled over the last five years and has more than quadrupled over the last decade.
But Starbucks' growth prospects might be better than some investors realize. Pre-pandemic, the focus was on China, with a growing middle class and a booming economy offering a golden opportunity. The pandemic slowed that down. Today, China is picking back up.
Meanwhile, the Starbucks Rewards program supports same-store growth around the world. A silver lining of the pandemic is that it accelerated mobile ordering and rewards sign-ups.
In the most recent quarter, 90-day active Starbucks Rewards customers reached 75 million globally, including 31.4 million in the U.S. and over 20 million in China. Rewards members also made up 57% of U.S. sales last quarter. The Rewards program is a key growth driver for the company and helps boost sales and satisfaction from loyal customers. It should continue to play a key role in growth for the foreseeable future.
NASDAQ: SBUX
Key Data Points
Reliable growth stocks for a favorable price
Netflix, Enphase, and Starbucks operate in completely different industries, but all three are similar in that they are growing slower than in the past and are now much more focused on cash flow and bottom-line growth.
These companies might not compound at the same rate as in decades passed, but they have found the sweet spot for what makes a growth stock reliable: earnings and cash flow increasing even if it comes at the expense of slower top-line growth.
Netflix now has a forward price-to-earnings (P/E) ratio of just 31.9, while Starbucks comes in at 27.1 and Enphase is at just 24. All told, investors are getting an excellent price and a lot of diversification from this basket of quality companies.
