Volatility is everywhere in the stock market these days. Almost all CEOs, it seems, are either moderating their expectations due to an uncertain macro environment or straying from guidance altogether. But savvy investors know that volatility creates opportunities for investors, or as Warren Buffett advised in half of his famous quote, “Be greedy when others are scared.”
If you’re looking for oversold stocks to take advantage of the market sell-off, keep reading to see my two favorite picks right now.
1. Airbnb: An underrated travel disruptor
In just over a decade, Airbnb (ABNB 2.20%) has disrupted the travel industry, making staying in someone’s home a viable option anywhere in the world.
The home-sharing leader now has more than six million listings on its platform and has spawned a new travel industry that includes competitors like Expediafrom Vrbo, Vacasa, Tripadvisor‘s FlipKey and Hipcamp, while older online travel agencies like Reserve credits have invested in providing “alternative housing” like apartments widely available on their platforms.
Despite this gold rush in home sharing, an industry Airbnb still dominates, the stock trades at a reasonable price-to-earnings ratio of just 28, down from a 2022 peak of over 60. That’s a sign investors expect its growth to slow soon.
While we could be heading for a recession in 2023, travel has so far proven more resilient than other sectors as people around the world are still catching up on missed opportunities during the pandemic. Even as the travel industry suffers, Airbnb has advantages over peers like Booking and Expedia that should give it a leg up in a recession.
First, unlike hotel-focused online travel agencies, private hosts around the world use Airbnb as a way to earn money, whether as extra income or as a primary job, and when others revenue streams dry up, potential hosts are more likely to turn to Airbnb.
For example, the company said in the third quarter that individual room listings jumped 31% from a year ago, a sign that people are looking for extra money to deal with the cost crisis. lives in much of the world.
Second, Airbnb’s interest income – which it earns on funds collected for bookings (before paying them out to hosts) – will skyrocket thanks to higher interest rates and could significantly exceed 58 .5 million dollars reached during the last quarter. It’s basically free profit.
Airbnb won significant market share over its peers since the pandemic, and it should continue to do so over the next few years, regardless of the broader economy. At the current price, the stock looks like a steal.
2. Williams-Sonoma: A Hidden Retail Gem
Williams Sonoma (WSM 3.81%) could be as timeless a brand as homeware. The company, which has been around since 1956, is known for its stylish cookware and tableware, and is a staple in wedding registries.
Today, Williams-Sonoma owns both Pottery Barn and West Elm, and the Williams-Sonoma brand represents only a fraction of total revenue.
During the pandemic, the company has seen phenomenal growth, benefiting from a boom in demand for home goods. It also gained market share and proved more resilient to macroeconomic volatility, with same-store sales (coms) jumping 8.1% in the third quarter of fiscal 2022. On a three-year basis , comps are up almost 50%. The retailer offers some of the strongest operating margins in its industry – 15.5% in the last quarter.
These numbers show the strength of the company, but what makes Williams-Sonoma one of my favorite stocks right now is its rock bottom valuation. The stock trades at a P/E ratio of just 7 based on earnings per share.
The reason Williams-Sonoma is trading at such a discount is because the company pulled its outlook through fiscal 2024 in the latest earnings report, which previously forecast revenue of $10 billion that year. . But the earnings call showed that the decision to withdraw the forecast was more a matter of caution than forecasting clear headwinds. In fact, the company expects its profitability to improve in the second half of next year as it tackles supply chain challenges, although revenue growth may be more uncertain in a downturn. recession.
However, the company has benefited from the sale and has the balance sheet to weather any turbulence. It has reduced outstanding shares by 9% over the past year and the company has no debt on its balance sheet, meaning it is not very exposed to a downturn.
Williams-Sonoma offers a 2.7% dividend yield, giving investors another reason to buy. At the current valuation, the stock looks set to rebound once Market sentiment changes, and earnings per share could increase and the company will benefit from the beaten stock price.
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