Regardless of whether you’re relatively new to the stock market or have been putting your money to work on Wall Street for decades, this has been a challenging year.
Since touching new closing highs during the first week of January, the nearly 126-year-old Dow Jones Industrial Average and widely followed S&P 500 have entered correction territory, with respective declines of 12.5% and 16.1%. The sell-off has been even more pronounced in the growth-focused Nasdaq Composite, where the peak-to-trough move since hitting its all-time high in November was nearly 30% last week.
While there are a number of reasons behind this sell-off, tech stocks are shouldering a lot of the blame. The industry that led throughout most of 2021 has turned into a cement block tied around Wall Street’s proverbial ankles.
But where there’s fear, there’s often opportunity for patient investors. During the 2022 tech wreck, the following three stocks have fallen as much as 90% from their all-time highs. Although near-term headwinds remain, they’re now at levels where they can comfortably be considered screaming buys.
CrowdStrike Holdings: 48% below its all-time high
The first screaming buy amid the tech stock carnage is cybersecurity company CrowdStrike Holdings (CRWD 11.79%), which has been nearly halved since hitting its all-time intraday high roughly six months ago.
The prevailing concern with most tech stocks is that historically high inflation, and the Fed stomping on the brakes by raising interest rates and ending quantitative easing measures, will send the U.S. into a recession. Since tech stocks are traditionally cyclical, a recession would likely lead to downward earnings revisions across the board.
However, CrowdStrike has a trick up its sleeve. Over the past two decades, cybersecurity has evolved into a basic necessity. No matter how well or poorly the U.S. economy and stock market are performing, robots and hackers don’t take time off from trying to steal enterprise and consumer data. As more businesses have pushed online and into the cloud in the wake of the pandemic, the onus of providing end-user protection has increasingly fallen on third-party providers like CrowdStrike.
Attracting new users has never been an issue. Over the past five years, CrowdStrike’s compound annual growth rate for subscribers has been a healthy 105%. What’s far more impressive is the willingness of existing clients to spend progressively more over time. For example, the company’s dollar-based net retention rate (DBNR) has consistently been above 120% for 16 consecutive quarters (four years). In simpler terms, DBNR measures how much more clients spend in the most recent quarter relative to the prior-year period. A DBNR north of 120% implies an organic growth rate among existing clients of at least 20%.
The cherry on top is that CrowdStrike’s subscribers tend to stick around, as evidenced by a gross retention rate that’s been hovering around 98% for the past three years. Because the company’s security platform, known as Falcon, is cloud-native and relies on artificial intelligence, it’s proved quite capable of quickly recognizing and responding to threats.
PubMatic: 67% below its all-time high
To echo what I said above, the big worry is that a U.S. recession is on the horizon, or perhaps already here. Ad spending is highly cyclical, meaning a slowdown in economic growth will almost certainly translate into companies spending less on marketing.
But there’s another side to this story investors should be aware of. Even though recessions are an inevitable part of the economic cycle, they don’t last very long. Comparatively, periods of economic expansion typically last years. Recessions are often the ideal time to buy…
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