The S&P 500 is down roughly 9% since the start of the year. Tech stocks are getting hit the worst with the Nasdaq falling 17% this month. Because of the Fed’s intention to raise interest rates in 2022, investors are adopting a risk-off approach, a move that hurts growth stocks in particular.
The general weakness in the stock market is a great opportunity for shrewd investors to make a move. Some high-quality businesses like Coinbase (NASDAQ:COIN), Crocs (NASDAQ:CROX), and Target (NYSE:TGT) are selling at attractive prices right now.
Let’s take a look at why you should seriously consider buying these three undervalued stocks.
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Coinbase: Gateway to the crypto economy
Coinbase is the top cryptocurrency brokerage and exchange in the U.S. with 7.4 million monthly transacting users and over $1.2 billion in revenue in the most recent quarter (ended Sept. 30). Retail and institutional users can trade 103 different crypto assets on Coinbase’s platform, and developers can use the company’s technological infrastructure to build blockchain-based projects.
While the business did produce almost 90% of its sales from volatile and unpredictable transaction fees, management is investing heavily toward boosting subscription and services. A promising and potentially game-changing initiative is the soon-to-be-released Coinbase NFT, a marketplace for users to mint, buy, and discover non-fungible tokens.
In order to own Coinbase, you would need to believe that digital assets are here to stay. Effectively, it’s a bet on the growth of the entire ecosystem. Investors don’t have to choose which individual cryptocurrencies will go up in value as Coinbase should ultimately succeed as the whole industry goes more mainstream.
Coinbase shares have lost 48% from their all-time high set in early November. And the stock currently trades for a price-to-earnings (P/E) ratio of just 17. No doubt, volatility is a key factor that investors need to consider. But if cryptocurrencies continue their growth in the decade ahead, Coinbase will be a major beneficiary, making it a solid investment.
Crocs: Trying to be more than foam clogs
With sales that soared more than 50% in each of the past four quarters, Crocs has been experiencing a resurgence thanks to the pandemic. Consumers are increasingly focused on comfort and utility above all else, and Crocs has been a huge winner as a result. The company’s remarkable gross margin of 63.9% significantly outshines that of heavyweight Nike.
Management fully understands that Crocs’ fate depends upon the success of its popular foam clogs, which account for more than 82% of sales. But the recently announced $2.5 billion acquisition of Italian casual footwear brand HeyDude is a clear sign of its intention to diversify the business. HeyDude is projected to generate $700 million to $750 million in revenue in 2022. It’s profitable, experiencing rapid growth, and can easily tuck into Crocs’ existing distribution channels and geographic footprint.
Even if we exclude the impact of the HeyDude purchase, the leadership team believes that Crocs will have $5 billion in annual sales by 2026. Continuing to utilize a marketing strategy focused on celebrity and branded collaborations — as well as gaining share in China, the world’s second-biggest footwear market — will be vital to achieving this financial target.
Crocs’ stock price has dropped 44% since November, and the company now sports a market cap of $9 billion. Given its ridiculously low P/E ratio of only 9, I think investors should pounce on this opportunity.
Target: Digital-focused brick-and-mortar retailer
The pandemic certainly dealt a blow to physical shopping, but because of investments made years ago to bolster its digital capabilities, Target was able to shine. The momentum is still strong as this top retailer increased same-store sales 12.7% year over year in its fiscal 2021 third-quarter, driven entirely by higher foot traffic. All five merchandise categories registered double-digit gains.
Target uses its footprint of more than 1,900 stores as local distribution hubs. Customers can order items for same-day curbside or in-store pick-up as well as for same-day delivery via Shipt. In the latest quarter that ended Oct. 30, these digital orders soared 60% year over year. And this was after skyrocketing 200% in the prior-year period. An incredible 95% of sales in the quarter were fulfilled by a Target store, helping inventory availability and reducing the need for costly logistics providers.
Although Target has been posting impressive sales and profit growth since the start of the pandemic, shares are selling today at an extremely attractive P/E ratio of 16. That’s a lot lower than for such competitors as Amazon, Costco, and Walmart, all of which trade at multiples greater than 40. Shareholders should also be excited about regular dividends and stock repurchases.
Brick-and-mortar retail isn’t dead; it’s just changing to a more consumer-friendly, omnichannel approach. And Target is leading this digital transition.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.