2 tech stocks with share price losses of 37% to 60% to buy for 2022.


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These solid companies are unfairly punished by the market. Experienced investors should take note.


In recent months, the market has sold off a wide range of tech stocks. Experienced investors know that this type of market slump is temporary. The stocks of high-growth companies will rebound if those companies continue to succeed.

Given the market conditions, three longtime investors picked stocks that have taken a beating lately but represent a good buying opportunity for the year ahead. They chose Snap (NASDAQ:SNAP) and Zoom Video Communications (NASDAQ:ZM), which are down between 37% and 60% from their highs.

SNAP
At a lower price, this social media stock Snap should bounce back Will Healy (Snap): Snap continues to fall after benefiting from a massive surge during the pandemic. The stock increased more than tenfold between March 2020 and November 2021.

However, some red flags for Snap's future and a third-quarter revenue decline have led to a nearly 50% drop since late September. As Apple's iOS update has made it more difficult to track the success of ad campaigns, uncertainty about the stock has increased. In addition, third-quarter revenue was $1.067 billion, 57% higher than a year earlier. Despite this huge increase, revenue was about $32 million below consensus estimates.

However, the current price-to-sales ratio is 18, which is the lowest it's been since the fall of 2020, and while this still seems high, Snap stock could justify this growth for two reasons. First, Snap appears capable of continuing to deliver significant growth rates. Analysts expect revenue growth of 60% in 2021, though they also believe it will slow to 39% in 2022 due to iOS issues.

Second, Snap revived its business amid stiff competition from Meta Platforms-powered sites when it figured out how to monetize that platform. Thanks to these efforts, the company was able to fund user growth and improve its vision of computers being put on camera.

These efforts have revived user growth that was once stagnant. In the third quarter, the number of daily active users reached 306 million, growing more than 20% year-over-year for the fourth consecutive quarter.

Moreover, these efforts have positioned Snap stock to become a notable Metaverse stock. The company's potential is so great that Jefferies analyst Brent Thill claimed in an interview with Yahoo! that Snap is "way ahead" of Facebook in the Metaverse. Thill cited technology that allows users to create and manipulate virtual emoji characters in making this statement.

Still, Snap faces challenges. With a market cap of $69 billion, Snap remains a small fraction of Meta's $920 billion market cap. Challenges with Apple also remain a headwind. Nonetheless, the stock can still command a premium with its substantial user and revenue growth. If investors increasingly see Snap as a Metaverse company, the price-to-earnings ratio of 18 could represent a buying opportunity.

A great operator at a great price (ZM).
Brian Withers (Zoom): Zoom's video communications platform proved very useful during the coronavirus pandemic. We used Zoom's software for just about every social interaction, whether for work or fun. Despite its popularity, the stock is down more than 60% from its peak. Today, it looks like this is a great value for long-term investors.

The company posted solid growth numbers for its revenue, major customers and remaining performance obligations. These gains came on top of even more massive gains in the prior year. In addition, the company is in a much better liquidity and profitability position than two years ago. Cash, cash equivalents and marketable securities stand at $5.4 billion, up nearly sevenfold from $811 million in the third quarter of fiscal 2020. Operating cash flow has increased from $62 million over the past two years to $395 million, a six-fold increase. Finally, operating margins have improved significantly, to 28% from a negative 1% in the same quarter two years ago.

Looking ahead, investors will not see triple-digit year-over-year growth as seen during the height of the pandemic. For the upcoming quarter ending January 31, 2022, management is projecting 19% year-over-year revenue growth. It is likely that this year-over-year revenue growth of around 20% is more in line with the new normal. Those are solid growth numbers for a company with $4 billion in annual revenue.

Today, Zoom's price-to-sales ratio is at an all-time low of 14. As hybrid work and virtual events become more prevalent, it's likely that Zoom can follow in Adobe's footsteps and deliver 15% to 20% annual growth over the next five years. Investors would do well to buy some shares of this video communications platform today.

Source: (fool.com)

Author: Brian Withers, Danny Vena and Will Healy / Published by: Christian Walter
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