The 24% drop since the start of the year Nasdaq Compound has tested investors’ patience, but it’s worth looking at the decline from a different perspective. Even after the recent drop, the Nasdaq is still up 86% from five years ago. No one knows when this bear market will end, but investors can be sure that companies offering in-demand products and services will rise in value regardless of how their stocks perform next month.
If this was my $3,000, I would consider splitting it into three pinterest (PINS 6.46%), Skyworks Solutions (SWKS 2.76%)and Allied Financial (ALLY 1.26%). These stocks have fallen sharply with the market, but at these lower stock prices, investors have a good chance of turning their total investment into $6,000 over the next eight years. Here’s why these stocks have double bagging potential.
Metaplatforms‘Facebook and Instantaneous getting a lot of attention on Wall Street, but investors shouldn’t overlook Pinterest’s large user base of 433 million monthly active users. Pinterest has seen an increase in user engagement during the pandemic, but the reopening of the economy and competition with other social media platforms have weighed on growth this year. In the last quarter, the number of monthly active users fell 5% from the year-ago quarter, with revenue growth dropping to a low 9%. Pinterest is capable of performing better, which is why it’s time to consider buying the stock.
Pinterest has a unique proposition for advertisers, which is how the business makes money. People usually have an intention to buy something when they use the app, which differentiates Pinterest from its social media rivals.
The company sees a monster opportunity in e-commerce and recently hired digital payments veteran Bill Ready as its new CEO. Ready has spent the last decade in leadership roles at PayPal and Alphabetfrom Google, and helped PayPal grow customer accounts and engagement until it left for Google. His hiring at Pinterest could be a springboard for the title.
Pinterest continues to invest heavily in machine learning and recommendation systems to guide users through their shopping journey on the platform. Pinterest recently signed a deal with Tastemade, which will bring new Idea Pins, news shows, and other video programming to Pinterest TV. In July, Pinterest acquired The Yes, a leading fashion shopping platform powered by artificial intelligence. These appear to be the finishing touch to the company’s long-term ambitions to leverage its unique user base in the growing e-commerce market.
The stock will likely be worth a lot more in 2030 than it is trading today. While I wouldn’t call Pinterest a bargain despite the steep decline in its stock price, its $16 billion market capitalization doesn’t seem like a lot given the size of the company’s user base and the potential under e-commerce expert Bill Ready. Among TwitterSnap and Meta, Pinterest has the lowest market cap but might be the most undervalued.
Skyworks is a leading chip supplier to several consumer end markets, including 5G smartphones, the Internet of Things and Wi-Fi 6 technology. The stock fell with the broader market, but provided a 220% cumulative return to investors over the past 10 years.
Even in this tough year for chip stocks, Skyworks is still performing like a long-term winner. Despite slowing demand in the semiconductor industry, Skyworks continues to post double-digit revenue growth in 2022, and management expects a strong year-end.
The adoption of 5G wireless connection speeds has garnered a lot of attention over the past few years. Skyworks is well positioned to benefit from this change, as it has relationships with all major smartphone manufacturers. But investors should note Skyworks’ reliance on Apple, which could be a risk, given Apple’s recent decision to design its own processors for iPhone and Mac. Still, the risk of customer concentration is worth accepting here.
Skyworks is diversifying its business to benefit from the growth of connected devices and wireless technologies in a range of markets. It is currently the #3 vendor in the analog chip market, behind Texas Instruments and Analog devices. But among these competitors, Skyworks saw the fastest revenue growth in 2021.
Revenue was up 10% year over year in the last quarter. Additionally, the company increased the quarterly dividend payout by 11% to $0.62 per share, reflecting a strong long-term demand outlook.
Market conditions in the chip industry are fluid right now. Investors should be prepared for weaker trading trends in the short term, but that’s why they can buy stocks at very low prices. The stock’s current price-to-earnings ratio of nine looks like a good deal. If Skyworks returns to its previous valuation of around 18 times expected earnings, which is still a discount to the market average, the stock would double in value.
Digital banking is another megatrend worth investigating. Mobile has changed the way consumers like to be entertained and communicate, but mobile banking continues to evolve. The mobile banking market is expected to double to $1.3 billion by 2028, according to Vantage Market Research.
Ally Financial is a leading digital banking app that consistently gets high marks from customers. The company prides itself on providing exceptional customer service and offering a growing range of financial services. Over the past few years, it has seen a noticeable consumer shift towards digital banking. While earnings have come under pressure due to rising non-interest expenses and rising provisions for loan losses in a declining economy, the company continues to deliver a strong return on equity tangible assets greater than 20%.
Management’s growth strategy revolves around diversification into more banking products. Personal deposit growth, a key driver of growth in other services, rose 6% year over year in the second quarter. This marked 53 consecutive quarters of growth in retail deposits. Meanwhile, Ally Lending saw a 26% year-over-year increase in gross issuance, while Ally’s new credit card offering was up 58% year-on-year. former. Growth in these areas offset weakness in Ally’s investment department, validating management’s diversification strategy.
Over the long term, management aims for a return on tangible equity (ROTE) of between 16% and 18%. This should justify a valuation multiple of 1.6 times the tangible book value per Ally share (e.g. 16% ROTE divided by 10% discount rate), but investors can currently buy shares of Ally Financial at just over one times tangible book value. This is a boon for a leading mobile banking brand that has seen consistent revenue growth.
Investors could get a 50% return just if the stock hits a fair valuation. Once you factor in the future growth of the business and the annual dividend yield of 3.41%, doubling by 2030, that’s money in the bank.
Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Ally is an advertising partner of The Ascent, a Motley Fool Company. John Ballard has no position in the stocks mentioned. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Apple, Meta Platforms, Inc., PayPal Holdings, Pinterest, Texas Instruments and Twitter. The Motley Fool recommends Skyworks Solutions and recommends the following options: $120 Long Calls in March 2023 on Apple and $130 Short Calls in March 2023 on Apple. The Motley Fool has a disclosure policy.