Whether you are a novice investor or someone who has decades of Wall Street experience, one of the most important financial lessons you’ve learnt is that stocks don’t rise in a straight line.
Since January, both the standard S&P 500 and the iconic Dow Jones Industrial Avg. have entered a correction phase (i.e., fallen at least 10% of their price). Meanwhile, the tech-driven Nasdaq Composite has dropped as much as 23%, putting it firmly in a bear market.
The stock market is a difficult beast to tame, but there are ways of mitigating the damage when it’s time for a correction. When the stock markets take a hit, it can be terrifying; nevertheless, they’re the ideal opportunity for opportunistic longer-term investors to make money. After all, every significant fall throughout history has been reversed by a bull market rally in the end. Patience and adding to high-quality firms trading at a discount are typically moneymakers.
If you have $300,000 in ready cash and a long-term investing horizon, the following two deeply discounted equities have all of the tools needed to turn your starting investment into $1 million or more by 2030.
PubMatic
Let’s say you’re looking for ways to improve your stock portfolio. What if I were to tell you that growth stocks can also be deeply undervalued value prospects? That’s the case with the cloud-based programmatic ad-tech firm PubMatic (PUBM 5.94%).
PubMatic’s stock has been on a 70% retracement since hitting its record intra-day high of nearly $77 in March 2021. Investor demand for ad-dependent businesses has been dampened by historically high inflation and the prospect of substantially higher interest rates. However, despite this shortsightedness, there are several reasons to be optimistic about PubMatic’s prospects.
To begin with, ad revenue has been moving from print to digital formats. The company is a sell-side provider that places digital advertising in available display space for publishing firms. PubMatic’s share of the global digital ad spending pie should rise as more ad dollars migrate to mobile, video, and connected TV platforms.
PubMatic, like most of the digital advertising platforms, has seen enormous growth over the last several years. Global digital ad spend is “only” increasing by around 10% each year, even as the pandemic speeds up the move of ad money to online channels. PubMatic posted a 49 percent organic growth rate last year and is expected to generate yearly sales growth of 25 percent in 2022 and 2023, according to Wall Street.
PubMatic’s topline is quickly expanding, and it’s beginning to reap the benefits of scale from its in-house developed cloud infrastructure. PubMatic’s gross margins are improving as a result of not having to rely on third parties. This should enable the firm’s earnings growth to outpace its robust sales growth over time.
Despite the fact that PubMatic’s forward-year value-to-earnings ratio is at 26, I believe its price-to-earnings growth rate (PEG ratio) to be around 1, based on Wall Street’s anticipated revenue development. Traditionally, firms with a PEG ratio of 1 or less have been considered undervalued. This bodes well for PubMatic in terms of turning $300k into $1 million in about eight years or less.
Lovesac
Another greatly discounted company with a rising growth rate is small-cap furniture chain Lovesac (LOVE 6.09%).
The furniture industry is generally sluggish, uninteresting, and sleepy. In other words, it is an industry that could use some shaking up and reinvention, which is precisely what Lovesac provides. There are two key elements of Lovesac that offer investors the potential to make $300,000 in ten years’ time or less by using them properly.
The main difference between Lovesac and its competitors is the firm’s furniture, specifically the “sactional.” The Sactional is a modular sofa that can be rearranged many times to fit with virtually any living environment. In fiscal 2022, almost 88% of Lovesac’s sales were derived from sactionals.
Sactionals are not only useful, but they also provide a wide range of alternatives. There are several upgrade possibilities, such as high-end speaker systems and built-in charging stations, as well as over 200 cover choices. This means that sactionals can be used with any color or design of a house.
Consider this: the yarn that is used in sactionals is composed entirely of recycled plastic water bottles, which gives you one more incentive to love them. The company’s core consumer base is made up of millennials that are in their 30s (people who want to do something about climate change but also worry about making a profit).
Lovesac’s omnichannel sales platform is the second key differentiator. During the pandemic, Lovesac was able to move nearly half of its purchases online, which meant it was not as badly impacted as traditional furniture shops by a decrease in foot traffic. Lovesac has significantly lowered its overhead expenses relative to its competition by leveraging partnerships and pop-up showrooms and promoting direct-to-consumer sales.
Lovesac’s earnings are expected to rise by 31% in fiscal 2023 and 22% in fiscal 2024, according to Wall Street. For a company projected to increase sales by 31% in fiscal 2023 and 22% in fiscal 2024, that’s a bargain.
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