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3 Top Stocks Down 32% to 87% to Buy Right Now

Motley Fool - Sat Aug 6, 6:15AM CDT

After a tumultuous first half of 2022, which saw major stock market indexes like the S&P 500 and the tech-heavy Nasdaq 100 plunge into bear market territory, green shoots are finally starting to appear. The Nasdaq 100, for instance, has bounced off its lows and gained an impressive 18% in the last two months alone.

However, many individual technology stocks are still deep in the red despite making up some ground alongside the broader market recently. Three Motley Fool contributors think if investor sentiment continues to improve, the upside in stocks like Snap(NYSE: SNAP), Veeva Systems(NYSE: VEEV), and Zoom Video Communications(NASDAQ: ZM) could accelerate. Those names are currently down between 32% and 87% from their all-time highs, but here's why they're worth buying now.

Snap will continue to be desirable to advertisers

Anthony Di Pizio (Snap): Inflation in the U.S. is currently at a 40-year high, which has forced the Federal Reserve into one of the most aggressive interest rate hiking campaigns in its history. Rapidly increasing costs are hitting household budgets and shrinking the bottom line of corporate America, dealing a major blow to companies like Snap, the parent company of social media platform Snapchat, which rely on advertising as a source of revenue.

When consumers are weak, businesses spend less on marketing as returns might be smaller. Similarly, if businesses are making less profit due to higher costs, they cut expenses like marketing to cushion the blow. In the second quarter of 2022, Snap's revenue grew by just 13% year over year to $1.1 billion. By comparison it grew revenue by a whopping 116% in the same quarter just a year ago. It really highlights the pullback in business confidence.

But Snap does have a couple of things going for it: Its daily active user base continued to soar to new heights, topping 347 million in Q2 -- up 18% from a year ago. Additionally, its audience is extremely young with 60% of users between 13 years old and 24 years old, making it one of the most desirable platforms in the social media space for advertisers.

Snap stock is down 87% from its all-time high, and it will continue to face challenges from the broader economy in the short term. However, it's investing heavily in improving the experience for advertisers, including initiatives to blunt the effect of Apple's privacy changes last year, which have wreaked havoc on the digital marketing industry. It also continues to build out its augmented reality capabilities, which drive much higher conversions for advertisers.

Snap has lost $781 million in the first half of 2022, thanks to a combination of its revenue growth woes and higher spending to improve the platform. But it has an incredibly strong balance sheet with over $4.8 billion in cash, equivalents, and marketable securities on hand, so it has a long runway to weather the current storm.

A leader to buy at a discount

Jamie Louko (Veeva Systems): Veeva Systems often gets overlooked because it isn't a high-flying tech stock, but it might be worth looking at now that it is 32% off its all-time highs. The company is the dominant software provider for life sciences businesses, offering tools for every step of their business -- from clinical testing to regulatory compliance to drug marketing.

Veeva could fare quite well over the coming quarters, despite inflation and a potential recession. Its tools are mission-critical for many of its customers considering they simplify data collection, storage, and other back-end operations. If a recession were to hit, it's unlikely customers would give up Veeva products in favor of manual processes. In fact, the company recently signed one of its largest deals ever with a top 20 pharmaceutical customer, despite inflation and recession worries.

In the company's first fiscal quarter -- which ended April 30 -- Veeva only grew its revenue by 16% year over year to $505 million. What it lacks in growth, however, it makes up for in profitability. Over the trailing 12 months, Veeva has generated over $767 million in free cash flow and $412 million in net income. Therefore, even if Veeva does get impacted by a recession, the company is so profitable that it can continue investing in its adoption, while rivals might have to cut back investment spending.

Veeva is unique in that no company offers the same wide-reaching product suite as it does. This puts the company in a great position to capitalize on an opportunity that management believes is worth $13 billion. With shares cut by more than a third over the past year, this leader looks like a no-brainer investment that can provide high profitability and stability while growing substantially over the long haul.

The leader in videoconferencing software

Trevor Jennewine (Zoom Video Communications): Zoom operates a cloud communications platform that unifies video, voice, and chat. It also addresses more sophisticated use cases like corporate conferencing suites, virtual event management, and contact centers.

Zoom rose to prominence during the pandemic, when its videoconferencing platform, Zoom Meetings, became instrumental in supporting socially distanced employees, students, friends, and families. Today, Zoom Meetings is the most popular videoconferencing product on the market, according to G2 Grid, and that popularity has made Zoom a recognizable brand name around the world.

The company is using that edge to drive adoption of adjacent products. Zoom Phone -- a cloud phone system that simplifies remote work while eliminating the complexity of on-site hardware -- is a perfect example. In the first quarter of fiscal 2023 (ended April 30), Zoom Phone hit 3 million seats sold, up from 2 million in September 2021.

So why is the stock down 72%? Zoom has seen revenue growth decelerate sharply in recent quarters, and many investors are nervous its best days are in the past. But that seems short sighted. The company is still expanding at a respectable clip, and Zoom is disrupting a massive market.

Over the past year, enterprise customers climbed 26% to 198,900, and the average customer spent 23% more. That points to a successful land-and-expand growth strategy. In turn, revenue rose 29% to $4.2 billion and earnings jumped 42% to $4.12 per diluted share.

The bull case for Zoom is straightforward: 832 million knowledge workers (excluding China) will work remotely at least part time by 2026, up 70% from 2021, according to Ark Invest. That trend should drive demand for tools like Zoom Meetings, Zoom Phone, and Zoom Contact Center, and those products represent the majority of what management sees as a $91 billion addressable market by 2025. On that note, with shares trading at 8.1 times sales -- a big discount compared to the historical average of 40.8 times sales -- now is a great time to buy this beaten-down growth stock.

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Anthony Di Pizio has no position in any of the stocks mentioned. Jamie Louko has positions in Apple and Veeva Systems. Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Veeva Systems, and Zoom Video Communications. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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