Has a new bull market begun?
It's too early to say for sure, but there are signs that the market may have already bottomed out. Inflation is cooling rapidly, and the Federal Reserve appears poised to cut its interest rate hike to just 25 basis points at next week's meeting. MicrosoftThe company's recent earnings report also indicated that its fourth-quarter financial results would likely be poor, but the fourth quarter is already in the past. The market is forward-looking, and investors are likely to seize on any sign that corporate profits have bottomed out.
One thing is certain: the stock market will eventually recover. Here are three stocks to capitalize on the recovery.
1. Redfin
Like the rest of the real estate sector, Redfin (RDFN 7,51%) Shares have been hammered over the past year, dropping nearly 90%. Growth has stalled. The company posted steep losses, issued two rounds of layoffs, and exited its domestic Redfin Now business.
The housing market may remain sluggish until 2023, but Redfin shares have fallen so much that it won't take long for the trend to reverse. In fact, the stock is up 431,000 y/y as the broader market begins to recover.
Mortgage rates have also fallen, with the 30-year rate falling nearly a percentage point from its peak of 7% in October, which could lead to a recovery in housing demand.
As an online real estate brokerage, Redfin is a cyclical business, closely tied to the real estate market. However, based on recent share price movements, the stock is likely to rebound when the real estate market shows signs of improvement.
Redfin also just released a report showing signs of optimism: metrics like home visits have improved since November, though they're still below where they were a year ago.
With a market cap of just $600 million and disruptive potential in a large industry, Redfin stock could still run higher.
2. All right
Cloud identity software company okta (OKTA 2,99%) was also a big underdog in 2022, with shares falling 70%.
This wasn't entirely due to macroeconomic headwinds. The company acknowledged the challenges of integrating Auth0, the customer identity software company it acquired in 2021. It backtracked on its long-term guidance, which called for $1.5 billion in revenue and $1.4 billion in free cash flow by fiscal 2026, and lost several executives.
As a result, Okta expects significantly slower growth next year, requiring revenue growth to slow to a range of 161TP3Q to 171TP3Q, reflecting macroeconomic uncertainty.
However, there are several reasons why the title appears poised to return. First, Okta will launch its new privileged access management product later this year, which, along with identity governance and administration, will expand its addressable market to $1,400,000. Second, the company competes in a product category less sensitive than others to macro-level factors, as identity is adjacent to cybersecurity. Okta is also an independent leader in identity and will continue to grow as demand for identity software increases.
Okta has a history of providing conservative guidance, and that may remain the case next year, especially if the economy begins to recover.
3. Fair
Few stocks have experienced the kind of boom and bust that fair (W 0.02%) made during the pandemic. Thanks to its location at the crossroads of e-commerce and home goods, sales boomed in 2020 and early 2021, but since then the company has seen revenue decline for six consecutive quarters.
However, management is taking steps to bring the company back to profitability and prepare for the economic recovery. Last week, Wayfair announced it would lay off 1,750 employees, or 10% of its total workforce, as part of a plan to cut $1.4 billion in annual costs.
The company also reported improved year-over-year revenue trends from November to December and said it expects to reach its adjusted EBITDA breakeven target earlier in 2023 than initially anticipated.
Overall, e-commerce stocks struggled in 2022 as the sector faced strong headwinds from the pandemic outbreak. Growth is expected to return to online retail, particularly in categories like home goods, where the majority of the market belongs to brick-and-mortar retailers.
With shares still down after falling 83% last year, Wayfair could see a big rebound when the economy improves.
Jeremy Bowman holds positions in Okta and Redfin. The Motley Fool holds positions in and recommends Microsoft, Okta, and Redfin. The Motley Fool recommends Wayfair and recommends the following options: $ February 7, 2023 short call on Redfin. The Motley Fool has a disclosure policy.
