It’s no secret but the stock market has taken a hit in 2022. The S&P 500 has dropped close to 15% and the Nasdaq is down roughly 25%.
… and that’s after these indices have moved higher over the past week. But I’m guessing it’s just a dead cat bounce. Negative pressures continue to build and the probability of a recession is climbing.
Either way, this downturn has already crushed these five tech stocks…
- Meta Platforms (FB) is down 49%
- Alibaba (BABA) is down 70%
- PayPal (PYPL) is down 72%
- Netflix (NFLX) is down 73%
- Asana (ASAN) is down 84%
Best Oversold Tech Stocks
There are lots of stocks that have dropped just as far… but just because they’re down, doesn’t make them good investments today. Some are sold for good reasons and might have a lot further to fall. But with these five stocks, they’ve caught my attention as a value investor.
I’ve already picked up some shares of Alibaba and Meta Platforms. They’re some of my largest positions. And I’m continuing to hold for the long-haul. Although now, I’m considering PayPal, Netflix and Asana. I like them each for slightly different reasons. And if they drop further, I might be adding them to my portfolio. So, let’s take a closer look at why…
3. Oversold Stock PayPal
PayPal continues to grow at a solid rate. Its sales are up close to 20% each of the past few years…
This year looks like it will slow down but the company continues to grow. Not only that, but profits have climbed over this timeframe as well. And the company’s balance sheet is pretty solid. Cash and cash equivalents have dropped but still stand at close to $5 billion.
That gives some good financial flexibility and on top of that, PayPal has been buying back shares. In the first quarter of 2022, it repurchased roughly 11 million shares for $1.5 billion. So, if the economy continues to falter, PayPal can easily stop buybacks and reduce spending elsewhere to weather the storm. And similar to other big tech companies, it’s already laying off employees.
With recent economic pressure, investors have beaten down PayPal stock. This was after a huge runup in tech stocks. So, a pullback was inevitable but with its share price tanking, its valuation metrics are looking more enticing.
If PayPal keeps dropping, there’s a good chance I buy in. And if that happens, I’ll let you know here on my YouTube channel why in more detail.
4. Oversold Stock Netflix
For the next oversold stock, investors have beaten down Netflix shares. I’ll explain why but first, let’s look at how it’s grown so far. Here’s how sales have grown over the past five years…
Growth is slowing and is expected to be lower this year. With the potential recession that’s taking hold, consumers are cutting back on spending. After paying more for gas, food and other items, there’s not as much leftover for nice-to-have subscriptions.
There are lots of streaming platforms to choose from today. The competition in the industry is fierce and growth is slowing. Nonetheless, Netflix has a leading position and has some levers it can pull to increase its user base and sales. Such as limiting account sharing and creating a lower cost ad supported service.
Netflix also continues to expand overseas as well. But of course, the recent macro-economic situation has spooked investors.
Netflix shares were way overpriced. I wouldn’t have touched them with a 10-foot pole a year ago. But with the big drop, we’ve seen valuation multiples come back down to earth.
Netflix is looking like a better deal today and if it drops further, I’ll be a new investor. Overall, the company’s management runs a tight ship and it has a solid balance sheet.
5. Oversold Stock Asana
For the last oversold stock, it’s still unprofitable. This makes Asana different than the others on this list. But there’s one huge reason I like it. And before we get to that, let’s look at the sales growth…
Asana is a high growth company. And its fiscal year is different than the calendar year. So, it’s already reported full year 2022, with sales up close to 67% year-over-year. That’s huge and it’s expected to slow some but still remain high.
With this huge growth, investors bid up its share price. But since, it’s crashed and its price-to-sales ratio is looking a little more reasonable. Asana is gaining market share and we’ve seen other successful companies take a similar path in different industries. In my full-time gig, I also use Asana’s products. So, similar to PayPal and Netflix, I have a bit of a hands on look at the value it provides.
There’s a lot to like about Asana. But as far as the share price, I think there’s still more room for it to fall. So, I’m staying on the sidelines and will dig deeper if it drops further… but now for the huge reason it caught my attention over the past year… insider buying.
The founder and CEO, Dustin Moskovitz, has been buying a massive number of shares. And here are some of the most recent reported transactions…
He’s outright bought more than $1 billion worth of Asana stock over the past year. And that’s been at higher share prices. As a result, investors can get a much better deal today.
Also, unlike insider selling, buying activity can be a more useful indicator. When it comes to selling, there can be lots of reasons like needing cash to buy a new home. But on the other hand, there’s only one reason to buy. Insiders think shares will trade higher in the future. And who knows more about a business than its founders and management?
Dustin Moskovitz is also a co-founder of Facebook and has solid experience building successful companies. So, recent moves are great to see and hopefully there are even better entry prices in the months ahead.
Margin of Safety
Now, are Asana and these other oversold stocks falling knives? Am I going to get cut trying to catch them? With Alibaba, I’m already seeing a lot of red in my portfolio. And on the other hand, I’m up on Meta Platforms.
If I buy into PayPal, Netflix or Asana, I’m not foolish enough to think I’ll buy in at the bottom. But I’m a long-term investor and can wait out short-term volatility. I’ll only buy if I think they’re trading at attractive valuations. And if they drop further – without the fundamentals drastically changing – the margin of safety improves.