The most recent bull market began at the start of 2023. Through the end of 2024, the S&P 500 rose more than 50%, and the Nasdaq Composite by a jaw-dropping 85%. The election briefly brought even more enthusiasm, as some saw the new administration as a net positive for corporations and the stock market.
However, the market loathes uncertainty, and trade wars and tariffs have rattled investors. The S&P 500 entered correction territory (more than 10% down from highs) by falling 19%, and the Nasdaq entered a bear market by retreating more than 24% from its recent high. This is a tough pill for many, but there is a silver lining.
Buying stocks during a raging bull market often means paying top dollar. A healthy pullback allows investors to buy stocks that are fairly valued or, in many cases, undervalued. We all say we want to buy low and sell high, but it's easier said than done. There are worries that a recession could cause the markets to retreat further, but no one knows if this will happen. Many were convinced a recession was coming in 2023, but it never did.
The trick is to buy tremendous, profitable companies that will likely outperform in the long term, regardless of what happens over the next few months. Here are two that I predict will soar again.
NASDAQ: NVDA
Key Data Points
Nvidia
Once the darling of the bull market, Nvidia (NVDA 3.17%) stock now sits more than 23% off its recent high. Many are concerned that demand for its high-powered graphics processing units (GPUs) will slow along with the economy. Others say that the artificial intelligence (AI) trade is over. But the evidence suggests otherwise.
Hyperscalers like Amazon, Meta Platforms, Microsoft, and Alphabet, which combined use hundreds of thousands of Nvidia chips in their massive data centers, all indicated on their recent earnings calls that they are full speed ahead on capital expenditures (CapEx) relating to AI. Elon Musk's xAI is building Colossus, a supercomputer that began with 100,000 Nvidia chips and, rumor has it, it will expand to 1 million or more.
The evidence says that these deep-pocketed companies will keep buying Nvidia's products as fast as Nvidia can produce them.
Image source: Nvidia.
Nvidia's recent earnings release, for its fiscal 2025's fourth quarter, was outstanding again. Sales hit a record $39 billion on 78% year-over-year growth. Data center revenue led the way, rising 93% year over year to $36 billion. The company ended the quarter in strong financial shape with $35 billion in net cash, despite using $8 billion to buy back stock.
NVDA PE Ratio (Forward) data by YCharts. PE = price-to-earnings.
The recent price drop has made the stock much more affordable, as shown above. The forward price-to-earnings ratio is near its lowest point since 2023. Given the economy's uncertainty, dollar-cost averaging is a terrific buying strategy. Still, at this price, Nvidia is poised to produce lucrative long-term returns.
The Trade Desk
What does it say when a growing, profitable company with a pristine balance sheet falls to a valuation lower than in the March 2020 COVID-19 crash? To me, it says "buy." The Trade Desk (TTD +2.47%) is one such company. Its Q4 2024 earnings disappointed investors. The overall market decline exacerbated this, and the stock sits more than 60% off its recent highs.
Here's why the crash is tremendously overblown in my book. The rise of website, mobile, social media, and especially streaming television ads changed how advertisers and publishers buy and sell advertising space. Much is now done programmatically, using demand-side platforms (DSPs) like The Trade Desk.
NASDAQ: TTD
Key Data Points
When a publisher has space available, it asks advertisers to bid on it in real time. The DSP does this for its clients while targeting key demographics and providing stats and data about the ad campaign's effectiveness. The Trade Desk's bread and butter is streaming, so it has strong tailwinds in this growing market.
The Trade Desk stock took its initial hit because Q4 2024 earnings missed their estimates for the first time in 33 quarters, or more than eight years. Founder and CEO Jeff Green was contrite in his remarks and laid out a detailed plan to fix the situation. Still, the quarter was far from a disaster.
Revenue rose 22% in Q4 over the prior year to $741 million, and 26% for 2024 to $2.4 billion. Operating income reached record levels: $195 million for Q4 and $427 million for 2024. The company also offered guidance for first-quarter 2025 of $575 million in revenue, a 17% increase over Q1 2024. The Trade Desk finished 2024 with $1.9 billion in cash and investments and no long-term debt. Nothing in these results justifies a 60% crash in the stock.
The stock's current valuation suggests a company in deep distress, which isn't the case. As mentioned above, its price-to-sales ratio is lower today than it was at the bottom of the March 2020 crash. The price-to-sales ratio drops to just 9 on a forward basis, making this an excellent time to buy The Trade Desk stock at an extremely low valuation.
TTD PS Ratio data by YCharts.
No one knows if the market has hit a bottom, if we will go into a recession, or what the ultimate outcome from tariffs will be. The situation is fluid and changes quickly. I do know that the best time to buy is when others are fearful, just as Warren Buffett says. I also know that Nvidia and The Trade Desk are high-quality companies whose stocks will likely reward investors richly in the long run.
