While the S&P 500 has climbed by about 19% so far in 2023, a lot of that has been driven by the gains of a relatively small number of massive tech companies with exposure to artificial intelligence (AI) trends. The stellar performances of companies including Nvidia, Apple, Amazon, Alphabet, and Meta Platforms have lifted the broad market index.
But there are still quality stocks that have sat out the rally or even lost ground across this year's trading. If you're looking for beaten-down buying opportunities in today's market, these two stocks now trade at big discounts from their highs, and have the potential to deliver fantastic returns.
Roblox is back to posting impressive growth
Keith Noonan: Roblox (RBLX 1.35%) is an online gaming service that was launched in 2006. Rather than being a single game, Roblox is actually a platform that houses thousands of unique play and social experiences. Users can create and monetize their own content on the platform, and this dynamic has paved the way for a steady stream of new games, experiences, and content updates for players.
In other words, Roblox is an early leader in the metaverse space, and has built a thriving content ecosystem that enjoyed impressive user-engagement growth.
The company went public in March 2021, and its stock price peaked at nearly $135 per share in November of that year amid a favorable market backdrop for growth-oriented stocks and engagement tailwinds stemming from the pandemic and social-distancing efforts.
But in 2022, the market pivoted away from high-risk growth stocks as the Federal Reserve shifted to a rapid interest-rate-hiking policy to combat inflation, and Roblox also saw its growth momentum sputter as the world emerged from the worst of the pandemic and moved closer to a state of normalcy. But the business has bounced back from periods of uneven performance, and it's once again delivering encouraging growth.
In 2023's third quarter, Roblox's revenue grew 38% year over year to $713.2 million. Meanwhile, net cash from operating activities jumped 68% year over year to $112.7 million. The company also averaged 70.2 million daily active users during the period -- up 20% year over year to a new record for the platform.
With its share price down 71% from its peak, Roblox stock looks like a worthwhile buy right now for risk-tolerant investors. There's undoubtedly some speculation involved in charting the company's trajectory, but the business has already demonstrated impressive staying power and scalability -- and it still has massive long-term growth potential.
The House of Mouse is on the road to recovery
Parkev Tatevosian: Walt Disney (DIS -0.04%) was devastated by the coronavirus pandemic, so it's understandable that its stock price is down 53% from its high-water mark. However, that sell-off allows long-term investors to get in at lower valuations while consumers unleash pent-up demand for away-from-home activities. That trend has boosted Disney's theme park segment, which has fueled a recovery of the business overall.
In its fiscal 2023, which ended Sept. 30, Disney's revenue jumped 7.5% to $89 billion. Perhaps more impressively, its operating income increased from $6.8 billion in fiscal 2022 to $9 billion in 2023. Of course, Disney's troubles are not all behind it. The company is still grappling with changing consumer preferences that are hurting its linear TV business.
That said, Disney does own several popular streaming services, including Disney+, Hulu, and ESPN+, that are attracting customers who are cutting the cord on cable in favor of streaming.
Admittedly, its transition toward a more streaming-heavy business might constrain profits in the near term as customers move from the more profitable consumption model to the newly developing streaming segment. The good news in the longer term is that with the added convenience of streaming, consumption of content will increase as folks can now watch almost anywhere.
DIS PE Ratio (Forward 1y) data by YCharts.
Although the stock's declines reflect Disney's near-term troubles, I think the sell-off has been overdone. Disney trades at a forward price-to-earnings ratio of under 18, which I think is a fair price for this excellent company.