There’s no beating around the bush: The market has not been kind to many investors in 2022. The S&P 500 is down 23.6% from all-time highs and officially in a bear market. If you concentrate your portfolio on internet stocks, technology, or really any sector besides energy, your returns have likely been as bad (or even worse).
But don’t fret. If you have a long-term time investment horizon and some spare cash available, now could be an optimal time to pick up some quality stocks at bargain prices.
Here are three beaten-down stocks to consider buying in June.
1. Match Group
Match Group (NASDAQ: MTCH) owns a portfolio of online dating services. These include older brands like Match.com, OkCupid, and Plenty of Fish, but also newer brands like Tinder, Hinge, and Chispa. It is riding a multi-decade tailwind in online dating adoption, with its revenue compounding at a 22% rate from 2017 through the end of 2021.
The company earns revenue by selling premium subscriptions to its users looking to better improve their prospects of finding a mate. Since the business is entirely digital, these subscriptions have extremely high profit margins, with the majority of costs going to app store fees and employee headcount.
With strong unit economics, Match Group has great-looking financials. Over the past 12 months, the company generated $3.11 billion in revenue and $878 million in operating income, for an operating margin of 28%. And this is with huge fees from the app stores that may be legislated lower and management still reinvesting heavily for growth.
At a market cap of $21 billion, Match Group trades at a trailing price-to-operating income (P/OI) of 24, slightly above the market average. But with room for margin expansion and a strong tailwind for top-line growth, Match Group will likely be generating much more in operating profit three to five years from now. This makes the stock an attractive buy at these levels.
You have likely heard of or interacted with Nintendo (OTC: NTDOY) and its various products and services. The Japanese company has been at the forefront of interactive entertainment for decades. The company has a long history of building unique gaming devices and beloved entertainment franchises like Mario, Zelda, and Animal Crossing.
Right now, Nintendo is heavily investing in the Nintendo Switch, a hybrid console/mobile gaming device that is the most popular by unit volume worldwide. As of the end of March, it has sold just under 108 million Switch devices globally since its launch in 2017. This has led to tons of game sales and online subscriptions, which is how Nintendo makes the majority of its profits.
In fiscal year 2022, which ended in March, the company generated $4.5 billion in operating income and is guiding for $3.8 billion this upcoming year. At a market cap of $49 billion and with $13 billion in cash on its balance sheet, the stock has an enterprise value of $36 billion. This gives it a forward enterprise value-to-operating income (EV/OI) of 9.5, which is well below the market average.
The thesis on Nintendo is simple. It has Disney-like intellectual property and brands and the stock trades at a cheap earnings multiple. It also has plenty of optionality with its new theme parks, animated movie production, and long-term partnership with Niantic (an augmented reality gaming company).
At a current enterprise value of $36 billion, the stock feels like a bargain right now and could be a great long-term bet for investors.
Lastly, we have InterActiveCorp (NASDAQ: IAC), a collection of internet/entertainment assets that are at a huge discount right now. IAC was started back in the late 1990s by Barry Diller and is now run by CEO Joey Levin. The company has a strong track record of buying companies or stakes in companies and creating value for shareholders. For reference, it actually used to own Match Group, which it spun out to shareholders a few years ago for massive gains. Recently, it purchased a huge stake in MGM Resorts that is now worth approximately $1.7 billion.
If we exclude all its minority stakes and cash and then add back its $1.9 billion in debt, IAC currently trades at an enterprise value of $3 billion. Looking at Dotdash Meredith, one of its fully owned operating units, management is expecting the division to generate $450 million in adjusted EBITDA in 2023 once it fully integrates the recent Meredith acquisition. That gives the stock an enterprise value-to-EBITDA ratio (EV/EBITDA) of 6.67, and this doesn’t include IAC’s other business units like Care.com and Search, which are doing quite well at the moment. In my eyes, this makes the stock look very cheap at the moment.
The core reason for owning IAC is the track record of creating value for shareholders. With the stock trading at such a discount, now seems like a perfect time to strike and pick up some shares of this company.
Brett Schafer has positions in IAC/InterActiveCorp., Match Group, and Nintendo. The Motley Fool has positions in and recommends Match Group and Walt Disney. The Motley Fool recommends Nintendo and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.