Not every pullback is a buying opportunity. Some downticks are earned. However, sometimes a stock falls out of favor when the business is holding up better than the chart may suggest. If you have a little money to put to work, I have a few ideas for some opportunistic purchases.
Netflix (NFLX +0.25%) and Lululemon Athletica (LULU +0.23%) are trading at least 30% below their 52-week highs. I think they're intriguing landing spots for your next $1,000 investment. Let's take a closer look.
Image source: Getty Images.
1. Netflix: down 30%
Shares of Netflix have fallen 30% since peaking this summer, but I'd like to start with a different starting line. The leading premium player among streaming service stocks has surrendered 10% of its value since the morning of Dec. 5, when Netflix was announced as the winning bidder for Warner Bros. Discovery (WBD +1.69%).
Go back another two weeks, and the stock has fallen 15% since it was a confirmed bidder in the final round of offers made for Warner Bros. Discovery on the morning of Nov. 20. This timeline has seen Netflix cough up $77 billion of its market cap. All because it ultimately bid $72 billion in equity value for the iconic studio and content powerhouse? Making it even more of a head-scratcher, the market is actually up by more than 3% during that time. The market has essentially wiped out the relative value of the Warner Bros. deal.
NASDAQ: NFLX
Key Data Points
Netflix remains a rock star, boasting more than 300 million paying subscribers. As traditional media stocks were struggling to turn their streaming businesses profitable -- and at least two major studios put themselves up for sale -- Netflix has been profitable every single year since 2002, the year it went public.
Netflix doesn't need Warner Bros. Discovery, but it's worth noting that it's financially in a position to buy out a rival without having to bring in a laundry list of third-party investors. It has achieved critical mass, making it the ultimate tastemaker and launchpad of new properties.
It also helps that it's making a ton of dough along the way. Its trailing free cash flow of $9 billion and its scalable business model mean the platform is only getting stronger with every passing year. Do you know the last time Netflix's annual revenue declined? Never. It did have one year of single-digit growth -- a 7% increase for 2023 -- but it has followed that up with back-to-back years of acceleration in top-line gains. History has taught us that pullbacks are buying opportunities when it comes to Netflix.
NASDAQ: LULU
Key Data Points
2. Lululemon: down 50%
Netflix is down quite a bit, and Lululemon has fallen even harder. In a world of yoga poses, the athletic apparel stock has been a downward-facing dog. Revenue growth has moderated after 19 years of double-digit top-line gains. Lululemon is bracing investors for 4% to 6% in revenue growth this fiscal year that ends in five weeks.
The revenue deceleration is actually the good news. Despite posting 7% growth in revenue for the fiscal third quarter the company posted earlier this month, comps for its flagship market in the Americas continue to be negative. Lululemon's top line is being bailed out by strength overseas, and international growth is going to keep expanding, with the brand entering six new markets in 2026 through franchise agreements.
Margins have been pinched. Adjusted net income has declined in each of the past three quarters, with the gap continuing to widen. Tariffs and the removal of the de minimis exception have dented gross margin. But that's not the only thing weighing on the brand these days.
Unlike Netflix, Lululemon has started to show signs of life. The stock ticked higher after the CEO stepped down two weeks ago. It moved higher again last week when an activist investor emerged. It's not comforting when the stock has two big steps back after "no confidence" events, but the value proposition is tempting here.
Lululemon may not seem cheap at a forward P/E of 17, but don't undersell the push overseas to help offset the challenges the athleisure specialist is facing closer to home. Don't dismiss the strength of the brand, and how a new partnership with American Express could result in a rebound in U.S. sales. This also seems like a potential dream scenario for a fashion-forward leader to step up and turn Lululemon around. It may not be as hard as it seems to turn Lululemon into lemonade.
