The S&P 500 index hit a record high last month, and it has continued to notch new peaks in February’s trading. While there are actually multiple definitions of what constitutes a bull market, one thing seems clear — we’re in one right now.
But while the S&P 500 is at a record level — and up 40% from its recent October 2022 low — there are actually some great stocks that are still down big from their highs of the last few years.
Read on to see why two Motley Fool contributors think you should pounce on these investment opportunities before they rebound due to strong business results and the market’s bullish momentum.
Roblox’s digital platform has great potential
Keith Noonan: Roblox (NYSE: RBLX) is a leading platform for online games and social experiences. In other words, it’s a top player in the metaverse space. But despite encouraging business momentum and a promising position in a category with huge potential, Roblox’s share price is still down 67% from its high.
Why is the software specialist trading at such a steep discount from its previous valuation peak? A lot of it comes down to timing.
The company had its initial public offering in March 2021, when the pandemic was causing people to seek out fun and socialization online. Social distancing dynamics drove surging engagement for the company’s platform, and dramatic growth helped push Roblox stock up to nearly $135 per share in November 2021.
But reopening trends meant that the business soon faced comparisons to explosive growth that it couldn’t meet. Making matters worse, the Federal Reserve’s moves to rapidly raise interest rates prompted investors to pivot away from companies with growth-dependent valuations.
Roblox’s valuation cratered due to this confluence of catalysts, but the good news is that its business is actually posting results that far exceed what it was serving up at the point of its valuation peak. The company’s recently published fourth-quarter results show that the platform is continuing to expand at an impressive rate.
The company closed out Q4 with 71.5 million average daily active users, representing a 22% annual increase and setting a new record for the platform. The service registered 15.5 billion total engagement hours in the period — good for growth of 21%. In addition to attracting new users and increasing overall time spent on its platform, Roblox also saw increased activity from paying users. The average bookings from monthly unique paying users rose 6% year over year to reach $23.65.
Overall bookings grew 25% to reach $1.13 billion, and revenue jumped 30% year over year to $749.9 million. While the software specialist posted a net loss of $323.7 million in the quarter, its operating income actually rose 20% to hit $143.3 million — and engagement trends bode well for the health of the business.
Over the long term, more play, socialization, and commerce will likely take place through digital channels. Roblox is positioned to benefit from this trend, and it’s also just starting to tap into potentially massive opportunities in digital advertising and artificial intelligence. For long-term investors looking for explosive opportunities in today’s bull market, the stock stands out as an attractive buy.
Disney is getting its groove back
Parkev Tatevosian: The Walt Disney Company (NYSE: DIS) is one of my favorite beaten-down stocks to buy right now. The House of Mouse is recovering nicely from the devastations of the pandemic. However, its stock price is still down 46% from its high in recent years.
Of course, the company is facing risks. Namely, there is a change in consumer viewing habits toward streaming. That said, I will argue that the selling is overdone, and Disney stock offers excellent potential rewards for the risk.
For one, Disney offers customers an excellent value proposition. Folks may complain about how expensive Disney’s theme parks, hotels, and cruises might be, yet people keep flocking to those services every year. Living close to Disneyland Park in California, I have scarcely visited the theme park without it being near total capacity, with hours-long waits for almost every attraction.
Indeed, overall revenue has expanded from $56 billion in 2016 to $89 billion in 2023. More notably, its operating profit decreased from $14.3 billion to $9 billion between 2016 and 2023. However, operating profit is up from the low of $3.66 billion in 2021. The profit decline was due to the combined forces of a pandemic that shut down its theme parks, cruise ships, and hotels and the decline of its linear cable segment.
As you can see from the recovery from 2021 to 2023, management has taken steps to bring profits back to pre-pandemic levels. Investors might want to add Disney stock to their portfolios before the continued recovery in profitability leads to an increasing stock price.
Should you invest $1,000 in Roblox right now?
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Keith Noonan has positions in Walt Disney. Parkev Tatevosian, CFA has positions in Walt Disney. The Motley Fool has positions in and recommends Roblox and Walt Disney. The Motley Fool has a disclosure policy.
A Bull Market Is Here: 2 Super Stocks Down 67% and 46% to Buy Right Now was originally published by The Motley Fool
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