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Stock Market Sell-Off: Here’s What I’m Buying

Stocks have been under pressure lately, and the S&P 500 index is now down roughly 14% across this year’s trading. Between a morass of concerning macroeconomic data, geopolitical pressures, and other risk factors, investors have had plenty of bearish catalysts to consider lately. 
However, big sell-offs often create great buying opportunities, and challenging market conditions can be blessings in disguise if you back the right companies. With that in mind, read on for a look at which stocks these Motley Fool contributors are buying in this turbulent market. 
Image source: Getty Images.

Consumers are poised to unleash pent-up travel demand
Parkev Tatevosian: I typically set aside a meaningful percentage of my portfolio in cash to buy discounted stocks during market crashes. On the top of my list right now is worldwide travel facilitator Airbnb (NASDAQ: ABNB). Travel nearly came to a halt in 2020 as people hunkered down at home to avoid contracting a potentially deadly virus. Thankfully, the world is making progress in its battle against COVID-19, giving folks the confidence to take that long-delayed vacation. 
After crashing to $610 billion in 2020, spending on hotels and resorts rebounded to $950 billion in 2021. Still, that is far behind the $1.47 trillion consumers spent in 2019 before the outbreak. Meanwhile, Airbnb’s revenue in its most recent quarter, which ended March 31, was 80% higher than at the same time in 2019. In other words, even as travel spending has not fully recovered, Airbnb’s revenue is ahead from before the pandemic.
This shows that consumers increasingly prefer the flexibility offered by Airbnb. Note that Airbnb does not own or operate any of the listings on its platform; it merely takes a fee for bringing hosts and guests together on its site. Therefore, to respond to the surge in consumer demand for travel in the coming years, Airbnb only needs to attract more hosts and encourage them to list more often. 

ABNB Price to Free Cash Flow data by YCharts
Given that spending on hotels and resorts in 2021 was $500 billion short of the expenditure in 2019, I suspect there will be billions more in growth over the next several years and for Airbnb to capture a meaningful share of that growth. Making Airbnb stock more attractive in my eyes is its lowest price-to-free-cash-flow ratio in years. At a P/FCF of roughly 28, it has hardly ever been cheaper. 
Defensive potential and explosive upside
Keith Noonan: Acquisitions have been all the rage in the video game industry over the last year. France-based publisher Ubisoft (OTC: UBSFY) could be the next domino to fall in the gaming industry consolidation trend. The company has fallen on hard times as of late, but it still owns development resources and franchises including Assassin’s Creed, Rainbow Six, and Ghost Recon that could make it attractive to a larger tech player or value-focused private buyers. 
On Ubisoft’s recent fourth-quarter earnings call, co-founder and CEO Yves Guillemot said that the company would consider acquisition offers but reiterated that the business has everything it needs to remain independent. I agree with his assessment, but also wouldn’t downplay the chance the company winds up being bought out. The possibility has helped the company’s stock hold up relatively well compared to the market at large lately. 

UBSFY data by YCharts
With interest in a potential acquisition shaping trading, Ubisoft could continue to enjoy something of a pricing floor despite tough market conditions. Multiple private equity firms have reportedly been looking into acquiring the company, the Guillemot family is said to be interested in buying the company to retain control, and it’s also possible that companies including Sony, Microsoft, Amazon, and Meta Platforms could swoop in with an offer. 
Ubisoft isn’t the strongest player in the gaming industry, but the company is guiding for a return to significant net bookings growth this year, and the stock looks cheaply valued trading at roughly 14 times management’s adjusted annual operating income target. With downside protection and multiple ways to deliver wins for investors, this is one of my favorite stocks right now. 
Follow the (cash) money and Etsy is a compelling buy
Jason Hall: One look at Etsy’s (NASDAQ: ETSY) share price — down by half over the past year and 71% off the high — and it would be easy to assume this is a money-losing business in trouble. Between rising interest rates and previous sky-high valuations, investors have sent many high-growth tech highfliers tumbling. 
And this is a valid concern for a lot of companies whose stock price has crashed; many are burning through the cash on their balance sheets, and will need to raise money to continue funding operations or slash spending to the bone at the cost of growth. More than a few simply won’t be able to cut costs enough — they don’t generate enough cash at their current scale. 
That’s not the case for Etsy. The company has consistently generated plenty of cash flow for years: 

ETSY Free Cash Flow data by YCharts
Yes, free cash flow and operating cash flow have fallen recently, but largely by choice as management has prioritized investments in operations to support growth and expansion across its multiple platforms. In short, this is exactly what investors should want Etsy to be doing right now: Having gotten to a stable, cash-positive scale, utilizing that strength to fund continued expansion. 
This sell-off has created a wonderful opportunity for investors with money to spend. At recent prices, Etsy shares trade for less than 24 times free cash flow, and 22 times operating cash. That’s a great price to pay for this high-quality business. 
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jason Hall has positions in Airbnb, Inc. and Etsy. Keith Noonan has positions in Airbnb, Inc. and Ubisoft Entertainment. Parkev Tatevosian has positions in Airbnb, Inc. and Meta Platforms, Inc. The Motley Fool has positions in and recommends Airbnb, Inc., Amazon, Etsy, Meta Platforms, Inc., and Microsoft. The Motley Fool recommends Nintendo and Ubisoft Entertainment. The Motley Fool has a disclosure policy. –

Stocks have been under pressure lately, and the S&P 500 index is now down roughly 14% across this year’s trading. Between a morass of concerning macroeconomic data, geopolitical pressures, and other risk factors, investors have had plenty of bearish catalysts to consider lately. 

However, big sell-offs often create great buying opportunities, and challenging market conditions can be blessings in disguise if you back the right companies. With that in mind, read on for a look at which stocks these Motley Fool contributors are buying in this turbulent market. 

Image source: Getty Images.

Consumers are poised to unleash pent-up travel demand

Parkev Tatevosian: I typically set aside a meaningful percentage of my portfolio in cash to buy discounted stocks during market crashes. On the top of my list right now is worldwide travel facilitator Airbnb (NASDAQ: ABNB). Travel nearly came to a halt in 2020 as people hunkered down at home to avoid contracting a potentially deadly virus. Thankfully, the world is making progress in its battle against COVID-19, giving folks the confidence to take that long-delayed vacation. 

After crashing to $610 billion in 2020, spending on hotels and resorts rebounded to $950 billion in 2021. Still, that is far behind the $1.47 trillion consumers spent in 2019 before the outbreak. Meanwhile, Airbnb’s revenue in its most recent quarter, which ended March 31, was 80% higher than at the same time in 2019. In other words, even as travel spending has not fully recovered, Airbnb’s revenue is ahead from before the pandemic.

This shows that consumers increasingly prefer the flexibility offered by Airbnb. Note that Airbnb does not own or operate any of the listings on its platform; it merely takes a fee for bringing hosts and guests together on its site. Therefore, to respond to the surge in consumer demand for travel in the coming years, Airbnb only needs to attract more hosts and encourage them to list more often. 

ABNB Price to Free Cash Flow data by YCharts

Given that spending on hotels and resorts in 2021 was $500 billion short of the expenditure in 2019, I suspect there will be billions more in growth over the next several years and for Airbnb to capture a meaningful share of that growth. Making Airbnb stock more attractive in my eyes is its lowest price-to-free-cash-flow ratio in years. At a P/FCF of roughly 28, it has hardly ever been cheaper. 

Defensive potential and explosive upside

Keith NoonanAcquisitions have been all the rage in the video game industry over the last year. France-based publisher Ubisoft (OTC: UBSFY) could be the next domino to fall in the gaming industry consolidation trend. The company has fallen on hard times as of late, but it still owns development resources and franchises including Assassin’s Creed, Rainbow Six, and Ghost Recon that could make it attractive to a larger tech player or value-focused private buyers. 

On Ubisoft’s recent fourth-quarter earnings call, co-founder and CEO Yves Guillemot said that the company would consider acquisition offers but reiterated that the business has everything it needs to remain independent. I agree with his assessment, but also wouldn’t downplay the chance the company winds up being bought out. The possibility has helped the company’s stock hold up relatively well compared to the market at large lately. 

UBSFY data by YCharts

With interest in a potential acquisition shaping trading, Ubisoft could continue to enjoy something of a pricing floor despite tough market conditions. Multiple private equity firms have reportedly been looking into acquiring the company, the Guillemot family is said to be interested in buying the company to retain control, and it’s also possible that companies including Sony, Microsoft, Amazon, and Meta Platforms could swoop in with an offer. 

Ubisoft isn’t the strongest player in the gaming industry, but the company is guiding for a return to significant net bookings growth this year, and the stock looks cheaply valued trading at roughly 14 times management’s adjusted annual operating income target. With downside protection and multiple ways to deliver wins for investors, this is one of my favorite stocks right now. 

Follow the (cash) money and Etsy is a compelling buy

Jason Hall: One look at Etsy‘s (NASDAQ: ETSY) share price — down by half over the past year and 71% off the high — and it would be easy to assume this is a money-losing business in trouble. Between rising interest rates and previous sky-high valuations, investors have sent many high-growth tech highfliers tumbling. 

And this is a valid concern for a lot of companies whose stock price has crashed; many are burning through the cash on their balance sheets, and will need to raise money to continue funding operations or slash spending to the bone at the cost of growth. More than a few simply won’t be able to cut costs enough — they don’t generate enough cash at their current scale. 

That’s not the case for Etsy. The company has consistently generated plenty of cash flow for years: 

ETSY Free Cash Flow data by YCharts

Yes, free cash flow and operating cash flow have fallen recently, but largely by choice as management has prioritized investments in operations to support growth and expansion across its multiple platforms. In short, this is exactly what investors should want Etsy to be doing right now: Having gotten to a stable, cash-positive scale, utilizing that strength to fund continued expansion. 

This sell-off has created a wonderful opportunity for investors with money to spend. At recent prices, Etsy shares trade for less than 24 times free cash flow, and 22 times operating cash. That’s a great price to pay for this high-quality business. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jason Hall has positions in Airbnb, Inc. and Etsy. Keith Noonan has positions in Airbnb, Inc. and Ubisoft Entertainment. Parkev Tatevosian has positions in Airbnb, Inc. and Meta Platforms, Inc. The Motley Fool has positions in and recommends Airbnb, Inc., Amazon, Etsy, Meta Platforms, Inc., and Microsoft. The Motley Fool recommends Nintendo and Ubisoft Entertainment. The Motley Fool has a disclosure policy.

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