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Friday, January 27, 2023

Nasdaq Bear Market: 3 Screaming Bargains That Could Double Your Money By 2025

Investing in the stock market requires investors to “hit the flow” from time to time. Although the major US stock indices have risen over the long term, stock market corrections, crashes, and bear markets are a normal part of the investment cycle. Last year, new and existing investors received this reminder.

When the lights went out in 2022, the three major US stock indexes had posted their worst returns since 2008. But it was growth dependent Nasdaq Composite (^IXIC) which pulled out the caboose with a loss of 33%.

Image source: Getty Images.

While the Nasdaq losing a third of its value in such a short time is certainly brutal for short-term traders, it represents a generational opportunity for patient investors to pick up high-quality stocks at a discount. What follows are three screaming bargains that can double your money by 2025.

Teva Pharmaceutical Industries

The first surefire deal that has the potential to double your money by mid-decade is the producer of brand name and generic drugs. Teva Pharmaceutical Industries (YOU GO -1.16%).

Over a five-year period, Teva faced a seemingly endless series of headwinds and misses. The company overpaid for generic drug company Actavis, lost sales exclusivity for its best-selling brand-name multiple sclerosis drug (Copaxone), suspended its once-high dividend, and has faced a long list of litigation ranging from from bribery allegations to his role in the opioid crisis. In other words, there are legitimate reasons why Teva stock has underperformed in recent years. However, these gray clouds appear to be taking off.

The biggest catalyst for Teva Pharmaceutical is putting opioid litigation in the rear view mirror. Teva reached a nationwide settlement of $4.2 billion that will extend over 18 years. While the final dollar figure might be a bit higher than some people expected, it removes a significant portion of the financial uncertainty that kept Teva’s valuation low for so long.

The other central change for Teva Pharmaceutical is that its balance sheet has been steadily improving. When recovery specialist Kare Schultz was hired as CEO in September 2017, Teva had net debt of more than $34 billion. But thanks to a combination of non-core asset divestments, belt tightening, and utilizing operating cash flow to pay down debt, Teva’s net debt has been reduced to a more reasonable $19 billion.

Teva’s income statements also show that its fast-growing brand-name therapies are now outpacing lost revenue to Copaxone’s generic competitors. The tardive dyskinesia drug Austedo is on track to reach or even exceed $1 billion in annual sales, while the migraine prevention therapy Ajovy is approaching $400 million in annual revenue.

Given all the bad news from Teva, it stands out as a scream buy at a multiple of just 4 times Wall Street forecast earnings in 2023. Doubling this multiple to 8, which is still cheap, in the next three years seems feasible.

lovesac

The Nasdaq bear market has also weighed on furniture stocks. lovesac (TO LOVE -2.81%)which is the second bargain that screams you can double your money by 2025.

Lovesac meets the challenges that most retailers face right now. This includes dealing with historically high inflation, supply chain issues, rising inventory levels, and the many signs that the US will slip into recession sometime this year. All of these factors mean that traditional retailers will struggle in the coming quarters. Fortunately, Lovesac is anything but a traditional retailer.

While most traditional furniture retailers buy their products from the same small group of wholesalers, Lovesac sets itself apart with its innovative products. Although originally known for its beanbag-style chairs called “sacs,” nearly 90% of the company’s net sales now derive from the modular armchairs that can be rearranged in a variety of ways.

Sactionals have over 200 different coverage options, can be upgraded to include wireless charging and surround sound systems, and are eco-friendly. The yarn used in the sactional covers is made from recycled plastic water bottles. In short, there is no other product on the market that can cover the bases of functionality, optionality and respect for the environment like the extras.

Lovesac’s other unsung hero is its innovative omnichannel sales platform. Despite having physical stores in 40 states, this company is much more than its physical stores. During the pandemic, he was able to shift a significant percentage of revenue online, as well as rely on pop-up showrooms and various brand partnerships to increase sales. Having multiple channels to move your products has led to better inventory management and lower overhead.

Investors should also keep in mind that Lovesac’s products are aimed at high- and middle-income consumers. These are people who are less likely to be negatively affected by higher inflation or a recession.

With Lovesac maintaining a double-digit growth rate and pacing over $5 in earnings per share in fiscal 2026 (calendar year 2025), it absolutely screams “bargain!”

A person working from home looking at their smartphone with a laptop open on their lap.

Image source: Getty Images.

PubMatic

The third big bargain that can double your money by 2025 is small-cap ad-tech stocks. PubMatic (PUBM) -1.61%).

The Nasdaq bear market has been indiscriminate when it comes to hype over the last year. Since advertisers tend to cut spending at the slightest hint of economic weakness, all advertising efforts, including PubMatic, have taken it seriously. But this short-term pain should lead to plenty of future gains for long-term investors.

The important thing for optimists is to take a broader perspective on the advertising landscape. While recessions are an inevitable part of the business cycle, they typically don’t last more than a couple of quarters. By comparison, economic expansions are generally measured in years. Advertising-driven companies benefit from these disproportionately long expansion periods.

Regardless of the macro factors working in PubMatic’s favor, the company is at the center of the fastest growing trend within the ad space. Through 2025, global digital ad spend is expected to grow at a CAGR of 14%. Broken down further, programmatic mobile, digital video, and connected television (CTV) ads are expected to produce compound annual growth rates of 20%, 24%, and 27%, respectively, through 2025. Since PubMatic generates a significant percentage of its CTV sales, it’s no surprise that its organic growth rate is far outpacing the digital advertising industry average.

As I noted earlier, PubMatic is strategically positioned to excel as one of the few remaining Sell-Side Platforms (SSPs). Through consolidation among SSPs, PubMatic has risen to the top of the pack as one of the leading programmatic ad platforms to help publishers sell their digital display space.

Also, PubMatic made a great decision, in hindsight, when designing and building its cloud-based infrastructure. Not having to rely on a third party for its programmatic advertising platform will allow the company to retain more of its revenue as it grows.

The icing on the cake here is that PubMatic ended September with $166.1 million in cash, cash equivalents and marketable securities, excluding debt. It has plenty of capital to keep innovating and is valued at less than 10 times Wall Street’s forecast earnings for 2025.

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