A bull market is just around the corner, it seems. The S&P 500 finished 2023 with a breakout rally that brought the broad-market index within a hair's breadth of an all-time high. While stocks pulled back in the first couple of days of the new year, it still seems like the S&P 500 will push into record levels this year, thereby kicking off a new bull market.
Even with the index near all-time highs, there are still a number of stocks that are down substantially from their peaks and are worth buying right now. Keep reading to see two of them.
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This category leader could deliver huge growth
Keith Noonan (Roblox): Roblox (RBLX 1.35%) operates a leading online entertainment platform and is at the forefront of the potentially explosive metaverse space. Users can access thousands of distinct games and social experiences through its hub, and it's even possible to create your own content and generate substantial real-world cash if it's popular with other players.
Even after climbing roughly 48% over the past year, Roblox stock is still down approximately 69% from the high that it reached in November 2021. For long-term investors seeking potentially explosive stocks that could surge with the next sustained bull market, building a position in the metaverse leader could have a big payoff.
The business admittedly posted some uneven performance over the last few years due to the waxing and waning of pandemic-related tailwinds and headwinds. Sales growth slowed to a trickle in the second half of 2022 as the business faced comparisons to periods that benefited from elevated engagement.
But even though growth for sales and engagement went through a slow stretch, Roblox remained a top player in a section of the online media landscape that has incredible long-term promise. The metaverse leader has proven that it's not a flash in the plan, and it's once again posting business momentum that should excite growth-focused investors.
In the third quarter of 2023, it once again set new engagement records. Average daily active users rose 20% year over year to hit 70.2 million, and total engagement hours on the platform reached $16 billion. Thanks to the jump in user activity, Roblox's revenue surged 38% year over year to hit $713.2 million.
As impressive as the company's recent performance has been, Roblox remains in the early stages of revving up its digital advertising business -- a potentially massive new growth engine. With the benefit of its platform's large and highly engaged user base, this has the potential to be a major performance driver for the company.
Still down massively from its previous valuation peak even as the business is soaring to new heights, Roblox stock could prove to be a steal at current prices.
An e-commerce stock on the mend
Jeremy Bowman (Etsy): The e-commerce sector has been slow to recover from the post-pandemic reopening as consumer spending has shifted away from goods to services like travel and restaurants.
Etsy (ETSY 0.34%), the online marketplace known for selling handmade and vintage goods, has been especially slow to bounce back. Gross merchandise sales (GMS), or the total value of goods sold on its platform, rose just 1.2% in the third quarter, while revenue increased 7% thanks in part to a fee hike.
The poor performance and growth headwinds have kept the stock down -- Etsy shares are off 80% from their 2021 peak -- but there's reason to believe that the stock should start to make a comeback in 2024.
First, the gap between spending on goods and services, which has plagued other discretionary retailers, should start to normalize as spending on travel and restaurants is no longer novel the way it was in 2022 and 2023.
Additionally, active buyers and sellers on the platform have returned to growth after declines in 2022, showing user interest is returning to Etsy. Active sellers, for example, were up 19% to 8.8 million in the third quarter, evidence that Etsy remains attractive to creators, while active buyer growth was more modest a 3.4%.
Etsy should benefit from expected interest rate cuts this year, which are likely to boost consumer spending and economic growth. The company also remains highly profitable with its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increasing 9% in the third quarter to $182.2 million, giving it an EBITDA margin of 28.6%. Etsy's margins seem likely to expand as it laid off 225 employees, or 11% of its total workforce, in December.
Finally, the stock looks well-priced at roughly 13 times EBITDA, meaning even a modest improvement in top-line growth should give the stock a jolt in 2024. Etsy stock might be down, but it's certainly not out.
