It’s never fun to live through a prolonged market decline. Watching your account balance drop day after day could be enough to make you want to give up investing. However, if there is an upside to a falling market, it is that deals often emerge as investors. to do giving up on decent companies just because their stocks have sunk.
When that happens, investors who haven’t given up all hope can often jump in and buy shares of growing companies at discount prices. With the possibility that such deals are starting to emerge, three Motley Fool contributors went looking to find growth stocks available at bargain basement prices. They found Lululemon Athletica (LULU 1.58%), Meta Platforms (META 2.37%)and Albertson (ACI 0.53%). Read on to find out why and decide for yourself if these companies have the right combination of discount prices and future prospects to deserve a place in your portfolio.
An investment that suits any investor well
Eric Volkman (Lululemon Athletica): In these sensitive times, when concerns about the direction of the economy cloud the stock market, even modest elements of bad news can drastically lower the value of a stock market. This happened more than once at sportswear supplier Lululemon Athletica.
Investors traded out of Lululemon’s stock in December after the company offered guidance in its third-quarter results that barely met analysts’ expectations. Never mind the double beat on the top and bottom lines, or the high year-on-year growth rates – 28% for revenue, and 36% for net income under generally accepted accounting principles (GAAP).
Adding insult to the market’s wounded psyche, the following month Lululemon caused even greater offense by revising its fourth quarter gross margin guidance. I now believe that this metric will show a decrease of about 1%, as opposed to the original expectation of marginal growth of 0.2% at best. The indignation of investors was expressed in another sale for the stock.
Yet Lululemon remains the star of athleisurewear, and its considerable growth is a testament to the strength of that position and the still-robust demand for such apparel. Americans in particular have become more health conscious in this millennium – hence the continued popularity of yoga and other exercise options.
And no company, not even fierce competitors like Nike o Gap‘s Athleta, marries the utility of sportswear and the appeal of well-designed streetwear better than Lululemon. No wonder it is still the first choice of many consumers.
There is also plenty of room for these yoga pants to expand. The company still very much centered in the United States has a vast potential outside the country, such as the men’s clothing segment that it has not yet targeted intensively. It has a plan in place, the “Power of Three”, which seeks to exploit these two opportunities, in addition to pushing digital sales much stronger. It’s likely that Lululemon’s best days, then, are far ahead.
A large user base just waiting to be reached
Parkev Tatevosyan (Meta Platforms): One of the positive consequences of the broad decline of the stock market in 2022 is that it has made many excellent growth stocks available for bargain prices. Meta Platforms is arguably the most dominant social media business in the world. The company has reached 2.9 billion daily active users on its apps. Of course, its services are free to use for consumers; Meta earns money by showing ads to people browsing its platform.
Heads you win, tails you’re not likely to lose much
Chuck Saletta (Albertsons): Chain stores don’t come to mind as the first choices of growth-oriented investors. Albertsons, however, offers a special circumstance at the moment where its shares are available at a clear discount due to the uncertainty surrounding its future.
Back in October, Albertsons agreed to be acquired for $34.10 per share, less a special dividend of $6.85 that went ex-dividend and now appears free to actually be paid to shareholders. That works out to about $27.25 per share for current investors.
Of course, there is an additional wrinkle that some Albertsons stores have to be spun off to a separate company to appease regulators. Even if that happens, existing shareholders will likely keep those stores in the spinoff as the rest of the chain is acquired, keeping the total value close to nothing.
Despite having that purchase agreement in hand, Albertsons shares recently traded at $20.95 each. That implies a whopping 30% yield — plus potential for a better-than-2% annualized dividend yield — between now and when the merger closes. This suggests that the market believes there is a very real risk that the merger will be completely blocked.
Still, even though the merger was blocked, Albertsons recently traded hands at about 7.5 times its expected earnings for next year as an independent company. Along with the price of the deal, the company would have to provide about an annual growth rate of 8% in the next five years, if it remains independent. Although not the fastest growing in the land, when paired with the low valuation and a decent dividend, it provides a path to a solid total return potential if the merger fails.
When you consider that this is something of a binary result – either the merger happens or it doesn’t – the uncertainty that keeps Albertson shares seems almost stupid. With a result, investors are likely to get a boost once the company is acquired. On the other hand, they have a solid business with a reasonable growth trajectory available at what looks like a value price.
Market deals don’t last forever
Regardless of whether you believe that Lululemon Athletica, Meta Platforms, or Albertsons provide a sufficient combination of bargain price and growth potential to make one or more of them worth buying, now is a good time to start looking for such opportunities. The market downturn has affected many investments, and something is probably out there right now, waiting to be found.
The chances of buying growing companies at discount prices don’t last forever, however. So make today the day you go looking, and you might just find the perfect diamond in the rough that deserves a place in your portfolio.