3 stocks down 33% to 54% from their 52-week highs that could soar in 2023

The market downturn has been brutal, but the good news is that the sell-off is starting to create some interesting investment opportunities.

Three Motley Fool contributors were recently selected Airbnb (ABNB 0.92%), Williams Sonoma (WSM 5.95%)and Six Flags Entertainment (SIX) as three undervalued stocks that should rebound. Here’s why 2023 might be a better year for these forgotten gems.

Airbnb stock: 54% off its 52-week high

Jennifer Sabil (Airbnb): Airbnb quickly went from an unprofitable growth stock to a profitable travel leader. After posting soaring triple-digit growth as travel began to reopen in the later phases of the pandemic, it has now slowed to double-digit growth, along with strong profits.

In Q3 2022, revenue grew 29% to nearly $2.9 billion, and net income improved 46% to $1.2 billion. Airbnb also recorded $3.3 billion in free cash flow over the past 12 months.

Airbnb has been a real industry disruptor. It offers unique and often more affordable travel experiences and a platform to easily find them. It opened up a whole new world of travel for people who otherwise would never have found these experiences, and it changed the way people think about travel.

The flexible platform model supports a wide range of categories and has fueled the long-stay trend. This has been a game changer over the past few years as remote working has become truly mainstream. Long-term stays, 28 days or more, remained stable at 20% of total gross nights booked. This is something that was unthinkable when the only readily available travel accommodations were expensive hotel rooms of a limited selection in a select group of urban locations.

And it’s not going to go back. These types of trends will continue to develop, and with its agile model, Airbnb can pivot to support new travel movements. This gives him a tremendous avenue for growth.

So why is the stock price falling? Partly because the valuation exploded with the stock price after its IPO two years ago, and partly because the market is sinking many stocks that aren’t in the “traditionally safe” category, although that the two go hand in hand. At the bottom price, the stock is trading at 28 times future earnings over one year, which is an acceptable valuation for a growth stock.

If the tide returns to a bull market in 2023, Airbnb stock could soar. Even if it doesn’t happen soon, Airbnb is a great long-term addition to your portfolio.

Williams-Sonoma: 33% reduction from its 52-week high

Jeremy Bowman (Williams-Sonoma): On the surface, Williams-Sonoma had a strong 2022. Revenue grew 8.3% in the first three quarters of 2022, and comparable sales jumped 8.1% in its final quarter, outpacing easily its furnishing peers who have battled the hangover of the pandemic boom.

In the end, the high-end home furnishings retailer, which also owns Pottery Barn and West Elm, didn’t disappoint either, with an operating margin of 16.5%, down from 16.2% in the same period. in 2021, and earnings per unit in the first three quarters jumped 18% to $11.08.

However, you wouldn’t know the company produced these kinds of results from stock performance, as stocks are now 29% off their 52-week high, creating an attractive buying opportunity.

Not only has Williams-Sonoma delivered strong revenue and earnings results, but the stock is also incredibly cheap right now, trading at a price-to-earnings ratio of just 7. The best explanation for this disconnect seems to be general. jitters about a recession and because the company pulled back from its fiscal 2024 guidance calling for $10 billion in revenue, though that seems to reflect macroeconomic uncertainty more than anything else thing, especially after the company’s strong third quarter results.

The market reaction appears as an opportunity. Williams-Sonoma’s strong set of brands, growing businesses like B2B, e-commerce marketplace open to third-party vendors, and commitment to returning capital to shareholders through buyouts and dividends make the stock a good fit. bet no matter what happens with the economic in 2023.

With a P/E of only 7 and a dividend yield at 2.7%, Williams-Sonoma looks significantly undervalued and looks well positioned to recoup some, if not all, of its recent losses this year.

Six Flags: 47% off its 52-week high

John Ballard (Six Flags Entertainment): Six Flags is a promising turnaround situation that could bring investors a nice return over the next few years.

Six Flags is the largest theme park operator in North America. It operates 27 parks and water parks, including two in Mexico and one in Montreal, Canada.

Theme parks can be a profitable business, if managed properly, and Six Flags has not been profitable in recent years. CEO Selim Bassoul took over in 2021 to correct previous mistakes by management, including an inflated cost structure, selling tickets at deep discounts that led to deteriorating profitability and overcrowded parks.

These are easy problems to solve, and Bassoul is the right one to solve them. From 2001 to 2019, Bassoul was the CEO of Middleby, a manufacturer of kitchen equipment for restaurants. A $1,000 investment in Middleby stock in 2001 was worth $138,000 by the time Bassoul retired in 2019. He generated those returns by focusing on profitable growth, and that’s exactly what he aims at Six Flags.

The mistakes of the previous management give Bassoul a clear roadmap to turn the company around. The first step is to stop reducing ticket prices. This will cause short-term pain, as regular visitors to the parks may be put off by the perceived greed of Six Flags. Unsurprisingly, footfall was down 33% year-over-year in the third quarter, but these are the right steps to stem the bottom line hemorrhage.

One metric that shows progress is that year-to-September per capita spending is up nearly 50% over 2019. Management also reported that season ticket sales are at 89% of 2019 levels through the first month of the fourth quarter.

Six Flags should be able to make a healthy profit margin soon enough. The company has generated up to $241 million in free movement of capital over the past three years, but its current market capitalization currently sits at just over $2 billion. It’s an incredible bargain to invest alongside a CEO who clearly knows what he’s doing.

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