Many investors are eager to place 2022 in the rearview mirror. Last year saw the prices of many stocks plunge, as the negative impact of inflation — and the Federal Reserve’s moves to tame it — took a heavy toll on the financial markets.
However, investors would be wise to remember that the stock market has recovered from all its previous stumbles, and it’s highly likely that it’s only a matter of time before the next bull market takes hold.
With that said, Walt Disney (DIS), Airbnb (ABNB), and Apple (AAPL) are three strong companies whose stock prices are currently near their lows of the past year. Buying their shares now can position you to profit handsomely from a market rebound.
1. Walt Disney
The media industry is in a state of upheaval. The cord-cutting trend is denting cable and broadcast TV providers’ profits, while movie theater chains have yet to recover from the lingering effects of COVID-19. At the same time, streaming services are struggling with intensifying competition, making profits hard to come by.
Disney has found itself squarely in the middle of these challenging trends, but the entertainment titan is positioned to navigate this storm better than its rivals. After all, Disney already has more streaming subscribers than Netflix, with over 235 million customers across its popular Disney+, Hulu, and ESPN+ offerings. Meanwhile, Disney’s diversified collection of theme parks, product licensing, and legacy media businesses continue to throw off bountiful profits.
Disney’s streaming operations are not yet profitable. However, the company has ramped up its spending to produce more content to entice more customers. It’s a sound strategy, one that has helped to fuel Disney’s impressive subscriber growth.
But recent price hikes and a new ad-supported plan are indications of management’s shifting focus toward profitability. Disney+ is projected to generate sustained profits beginning in 2024 — an achievement that would likely spur a powerful rally in Disney’s stock price.
With Disney’s shares down roughly 43% over the past year and trading near their 52-week lows in the mid-$80s, you currently have a chance to buy the media giant’s stock at a heavily discounted price ahead of these potential gains.
2. Airbnb
Fears of a potential recession and a corresponding downturn in the travel industry contributed to a 49% decline in Airbnb’s share price in 2022. Yet the home rental market has held up relatively well, buoyed by the remote work trend and demand for vacations forgone during the early stages of the pandemic. Investors thus appear to be underestimating Airbnb’s prospects.
More than 4 million hosts list their properties on Airbnb’s platform. This extraordinary scale, combined with Airbnb’s brand recognition and leading consumer mindshare, gives it powerful advantages over its competitors.
Moreover, listing homes for rent has become a way for people to make extra money during difficult economic environments. Single-room listings jumped 31% year over year in the third quarter, due in part to this trend. All told, Airbnb’s revenue surged 29% to $2.9 billion, while its net income soared 46%, to $1.2 billion.
Yet, it’s Airbnb’s cash flow generation that’s perhaps most remarkable. With hosts incurring the costs of buying and preparing properties for rent, the company doesn’t have much in the way of capital expenditures. In turn, it converted a third of its revenue into free cash flow in the third quarter, a sizable sum of $960 million.
Despite this impressive growth, profitability, and cash flow generation, Airbnb’s shares are trading near their 52-week lows, around $85. With a market cap of roughly $54 billion, Airbnb’s stock can be purchased for about 16 times its $3.3 billion in trailing-12-month free cash flow. That’s a bargain price for such a high-quality business.
3. Apple
COVID-related disruptions are snarling Apple’s supply chains in China. Panicked investors have rushed to sell the tech titan’s shares, which are down nearly 30% over the past year.
Fortunately, CEO Tim Cook is a logistics expert, and he’s exactly the right person to fix the company’s supply chain issues. Apple has already begun to move some of its manufacturing sites to places like India and the U.S. to better diversify its operations.
Better still, Apple’s highly profitable services are becoming a larger portion of its business. Offerings such as Apple Music and Apple TV+ are attracting subscribers at a solid clip. And the tech juggernaut’s nascent advertising business is set to grow far larger in the coming years.
This strong growth in services is helping drive Apple’s unrivaled profit and cash flow production, to the tune of $95 billion in net income and $111 billion in free cash flow over the trailing 12 months.
Best of all, these profits can be had for an attractive price. With its shares still trading near their 52-week lows, around $125, you can buy Apple’s stock at a hefty discount today.
— Joe Tenebruso
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Source: The Motley Fool