It’s been a tough go for the market of late. The Nasdaq Composite (NASDAQINDEX: ^IXIC) currently sits more than 20% below its late-March high, and is down nearly 30% from November’s peak. And of course, for some Nasdaq-listed stocks the past few weeks have been much, much worse.
If you’re thinking many of these severely sold off names are now priced too low to pass up though, you’re right. Here’s closer look at three of the Nasdaq’s most beaten-down stocks that could be near a bottom, and are ready to bounce back.
Okta (NASDAQ: OKTA) is a cybersecurity outfit. The company offers a way of ensuring only authorized users are logging into a network, whether they be employees or a company’s customers.
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There was a need for such services before COVID-19 took hold, but when millions of people started working from home during the pandemic, the need for such security measures swelled. And it’s still swelling. Okta’s revenue is projected to grow to the tune of 37% this fiscal year, and by nearly 34% next year. While it’s still unprofitable, next year’s growth should take a big bite out of that loss, putting profits in view within the foreseeable future.
This pace of progress hasn’t impressed investors lately. The stock’s down 66% since November, hitting new 52-week lows just earlier this month.
Okta’s leadership of a broad sell-off from the technology sector, however, seems to be rooted in the wrong idea. That’s the assumption that as the coronavirus pandemic eases, so too will demand for secure logins. It won’t. If anything, it’s still growing. In Arkose Labs’ 2021 State of Fraud report, the digital fraud prevention outfit noted a 70% increase in fake new account registrations early last year, adding that so-called “credential stuffing” accounted for 29% of all the cyberattacks it monitored.
To this end, Mordor Intelligence estimates the digital authentication management market will grow at an average annual pace of 22% from 2018 through 2026. Okta has already proven it’s more than capable of winning more than its fair share of that market growth.
If you want proof that even the market’s most beloved stocks are sometimes capable of falling out of favor, chew on this: Amazon (NASDAQ: AMZN) shares are now priced 35% less than March’s high, and are down more than 40% from November’s peak.
Surprised? Don’t be. Higher prices seen since the middle of last year aren’t just merely annoying. Higher fuel costs, materials costs, and labor costs can be outright problematic for a company like Amazon, which despite its size operates on paper-thin profit margins. And, as CFO Brian Olsavsky made a point of explaining during the company’s conference looking at disappointing first-quarter results, “[T]he cost of fuel is approximately one and a half times higher than it was even a year ago. Combined with the year-over-year increases in wage inflation, these inflationary pressures have added approximately $2 billion of incremental costs when compared to last year.”
For perspective, the company generated $3.7 billion worth of operating income for the quarter in question, down more than half from the year-earlier comparison despite greater revenue. Moreover, the only profitable venture Amazon managed last quarter was its cloud computing business, Amazon Web Services. Its consumer-facing, online-retailing operation actually lost money for the three-month stretch ending in March.
So why step into the stock now? Because it’s Amazon. It’s been here before, and adjusted as needed. It will do so again. As CEO Andy Jassey noted in the first-quarter report: “Today, as we’re no longer chasing physical or staffing capacity, our teams are squarely focused on improving productivity and cost efficiencies throughout our fulfillment network.”
Finally, add Adobe (NASDAQ: ADBE) to your list of humbled Nasdaq stocks ready to bounce back.
Most computer users will recognize Adobe as the name behind the pdf (portable document file) type of file that’s made it possible to deliver easy-to-print documents via the web. Veteran investors may remember that Adobe also largely pioneered the digital image creation, management, and enhancement software market with a program called Photoshop. While plenty of alternatives are around today, Photoshop is still around too, as is the pdf file.
What most investors may not realize, however, is that Adobe is so much more than Photoshop and pdf files these days. It offers full-blown platforms that help enterprise-level clients create and optimize websites and online advertising campaigns, and, yes, make digital photos and imagery. The one called Experience Cloud empowers its customers to not just manage and promote an e-commerce site, but collect and analyze data about its users and traffic. It can even help its enterprise users change the look and feel of a website to suit differing visitors.
The other one, Creative Cloud, is a digital image creation and enhancement tool that can do more with a photograph than most people ever thought possible. There’s nothing else out there quite like either offering. Even in a tough economy, clients can’t simply give up access to these tools.
These platforms are largely rented rather than sold outright, made available as a cloud-based app rather than downloaded software. The end result is an increasing degree of recurring revenue. The shift in the company’s business model, however, isn’t crimping growth. Analysts expect to see sales growth of 13% this year accelerate to a clip of nearly 15% next year, with similar profit growth in the cards.
Given this sort of consistent forward progress, the stock’s 44% slide since November is a chance to plug into it at a bargain price.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe Inc., Amazon, and Okta. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe Inc. and short January 2024 $430 calls on Adobe Inc. The Motley Fool has a disclosure policy.