The bear market of 2022 was brutal, and market conditions haven't recovered in most segments of the economy. Consequently, many stocks still trade at a small fraction of their peaks in 2020 and 2021 and may not recover for years.
Still, there's a silver lining: Investors with cash can take advantage of some low-priced stocks that seemed unaffordable at the height of the boom. If you're looking for such a bargain, consider buying Zoom Video Communications (ZM 1.57%), Innovative Industrial Properties (IIPR -0.17%), and Sea Limited (SE 0.05%).
Let's look at why these three sale-priced stocks are buy prospects right now.
1. Zoom Video
Zoom stock may be cheap at the moment for good reason. The pandemic-induced frenzy surrounding the stock faded when conditions returned closer to normal. Also, considering it competes with much larger peers such as Microsoft and Cisco Systems, there's some skepticism about whether it can build a competitive communications platform.
Cathie Wood's Ark Invest, a major Zoom shareholder, published an open-source report highlighting Ark's investment case, which forecasts a nearly 11-fold increase in the company's share price by 2026. Ark bases this performance estimate on expectations of massive increases in hybrid and remote knowledge workers. Moreover, the company's conversational artificial intelligence (AI) tools, such as Zoom IQ, could boost the productivity of these workers.
Admittedly, the slow revenue growth calls into question whether an investment case for the company can be built. Its revenue in the first nine months of fiscal 2024 (ended Oct. 31) was $3.4 billion, a 3.2% increase from the same year-ago period. The company's net income was $339 million for that period, 62% higher than the same period last year. Gains from unrealized investments covered most of that gain over the nine months. Still, in Q3, Zoom experienced a massive surge in operating income, indicating that its operations can grow profitability.
Zoom also raised its revenue outlook for fiscal 2024. That could indicate that some of the more optimistic growth forecasts could become reality. The company's price-to-sales ratio (P/S) of 4.5 is close to record lows, so Zoom could bolt higher as it leverages its name recognition and AI-related capabilities to attract more business.
2. Innovative Industrial Properties
Innovative Industrial Properties (IIP) is the largest real estate investment trust (REIT) focused on facilities for cannabis production. Its status as a real estate provider shielded investors from much of the industry volatility, as the company continues to report profits.
Nonetheless, as some cash-strapped investors began to miss rent payments, investors sold the stock aggressively. Today, it trades at nearly a 70% discount from its all-time high.
However, IIP has been adept at working out payment terms with tenants, finding new tenants, and selling properties, when needed. This flexibility allowed it to remain in a growth mode, even as the industry endured a severe downturn.
In the first nine months of 2023, revenue came in at $230 million, a 12% increase, compared to the same period in 2022. That increase led to $173 million in funds from operations (FFO) income in the first three quarters of 2023, which rose 10% from year-ago levels.
That's enough cash to cover the $153 million in common and preferred dividend expenses for the period. The payout, which amounts to $7.20 per share annually, yields more than 9%, far above the S&P 500 average of 1.5%.
Additionally, its price-to-earnings ratio (P/E) of 14 brings its valuation to near all-time lows. Considering IIP's valuation, continued revenue growth, and massive dividend, investors may want to buy some stock before other investors bid its price higher.
3. Sea Limited
Southeast Asian conglomerate Sea Limited is another stock struggling to recover from the downturn. The company, which operates in the fintech, e-commerce, and gaming segments, has faced particularly difficult struggles with e-commerce and gaming since the pandemic eased.
Over time, the company's e-commerce segment Shopee returned to growth. However, its gaming division Garena struggled amid the declining popularity of Free Fire, its mobile battle royale game that was the world's most downloaded mobile game as late as 2021.
In Q3, Garena's revenue dropped 34% year over year. Still, that was less than the 41% drop in Q2.
Free Fire is set to return to India, a country of 1.4 billion people, which banned the game in early 2022. Such a move could greatly help Garena, even if it fails to develop other games that match Free Fire's popularity.
Nonetheless, 12% growth for e-commerce and a 37% revenue increase for financial services took overall revenue to $9.5 billion in the first nine months of 2023, rising 6% from year-ago levels.
Moreover, after three straight profitable quarters, the company returned to losses in Q3, and the stock plunged. But over the last nine months, Sea still claimed $274 million in net income for the first three quarters of the year.
As a result of its troubles, Sea Limited has become a cheap stock. Its P/S is 1.7 and its P/E is 33. Investors could flock to the entertainment stock once they see signs of recovery in the gaming segment.
