During turbulent times, you may be confronted with difficult decisions on what to buy as every stock out there looks cheap. The recent bear markets in the Nasdaq Composite Index and S&P 500 have thrown up plenty of attractive opportunities as stocks tumble en masse due to both recession fears and inflation worries. As valuations become more tempting by the day, it may be tough to separate the wheat from the chaff.
There are some indicators you can look for to decide which companies you can buy today to hold over the medium term. As the saying goes – tough times don’t last, but tough people do. By buying stocks that display continued revenue growth, a strong track record of performance, a valuable niche, and a dominant market position, you can be almost assured of a positive outcome three years later when the troubles subside.
Here are three stocks with the above attributes you can consider adding to your portfolio.
Adobe (NASDAQ: ADBE) is a market leader in the digital media and software arena and offers several cloud products such as Document Cloud and Creative Cloud for clients. These cloud services offer tools for clients to express their creativity as well as communicate and collaborate securely across devices, helping to increase productivity and efficiency. Adobe’s dominance in this space probably doesn’t explain why its share price has fallen by 36% year to date.
Investors who looked back at Adobe’s three-year financial numbers would have seen steady, consistent growth in both top and bottom lines. From 2019 to 2021, revenue rose 41.3% from $11.2 billion to $15.8 billion while net income jumped 63.4% to $4.8 billion over the same period. Subscription revenue, the core recurring revenue base for the company, went from 86.2% of total revenue in 2019 to 92.3% in 2021. For 2022’s second quarter, revenue hit a record high of $4.4 billion, up 14% year over year, with subscription revenue making up close to 93% of total revenue. Other attributes such as consistent free-cash-flow generation also justify why the company makes for a safe investment during volatile times.
There is nothing to suggest that this growth will slow down anytime soon, as Adobe continues to innovate and add capabilities to its various services. Its analytics platform can now unify data and insights across multiple media types, while also offering support for metaverse and streaming data. The company is also testing a free version of its Photoshop software on the web and plans to extend this service to more people in a bid to introduce more users to its software.
Etsy (NASDAQ: ETSY) was one of the beneficiaries of surging e-commerce demand as the pandemic swept across the world in 2020, but has since lost nearly two-thirds of its value year to date as investors fret over waning demand. The landscape has, however, been altered in favor of the company as more people are now transacting through the internet and tapping into digital commerce. Etsy reported that gross merchandise sales (GMS) more than doubled from $1.2 billion in the first quarter of 2020 (1Q2020) to $2.8 billion in 1Q2022.
Etsy’s results have also impressed over the last two years, with revenue climbing 35% year over year to $2.3 billion in 2021 and net income improved by 41.3% year over year to $493.5 million. The momentum has slowed in the first quarter of 2022, with GMS and revenue rising 3.5% and 5.2% year over year, respectively, while net profit has plunged by 40.1% year over year to $86.1 million due to higher operating expenses.
If we set aside the high base effect from 2021, it’s clear that Etsy’s business has improved by leaps and bounds as an increasing number of people flock to its platform to transact. The number of sellers has increased to 5.5 million in 1Q2022 from 2.6 million two years ago, while buyers have increased by more than 80% over the same period. Its acquisitions of Depop and Elo7 last year have also broadened its reach and allowed it to market to a wider base of customers, thereby expanding its total addressable market. Etsy estimates that it has captured just 2.6% of the online total addressable market and that it is still early days for the company to capture further growth.
Yet another beneficiary of the pandemic, Match Group‘s (NASDAQ: MTCH) family of dating apps such as Tinder, OKCupid, and Meetic has helped many to connect and keep their social life active despite movement restrictions. These apps’ popularity probably doesn’t explain why the company’s stock has lost nearly half its value year to date. Match Group’s numbers have been encouraging — 2021 saw a 24.8% year-over-year rise in revenue, while net income soared by 71.1% year over year to $277.8 million.
For 1Q2022, Match Group’s numbers continue to impress. Total revenue rose 20% year over year while operating income increased by 10% year over year to $208 million. The number of paying customers continued its ascent, increasing by 13% year over year to 16.3 million, while revenue per customer inched up 6% year over year to $16. These numbers were achieved despite the negative impact of the Russia-Ukraine war on the company’s European business and continued COVID-19 restrictions in several countries.
Match’s competitive moat remains strong, and the company has seen consecutive year-over-year rises in its monthly active users since its IPO in 2015. This sizable user base allows the company to further monetize its apps and roll out new products and services such as live video and digital goods. Tinder Coins, an in-app virtual currency, will be launched in the summer of this year and can help to further customize experiences for its member base. Match also saw success with Hinge, a dating app targeting the LGBTQ+ community, that saw revenue rise more than tenfold from 2019 to 2022. It launched a new product called Stir recently, targeting the 20-million-strong single-parent market, and has received favorable initial feedback. The company’s innovative approach and its ability to identify niche areas to target in the dating industry should stand it in good stead to continue growing in the years ahead.
Royston Yang has positions in Adobe Inc. The Motley Fool has positions in and recommends Adobe Inc., Etsy, and Match Group. The Motley Fool recommends Nasdaq and 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.