When the stock market goes down, the opportunities for profitable deals are in abundance. However, the problem with selection remains. During the so-called Bear market (when the market declines), the key to success is to select the quality business, whose shares are traded at lower values than their fair value than the so-called “Junk” shares.
When two-thirds of the shares, which are included in the S&P500 index, are traded with a -20% decline comparing their historical peaks and the index itself has a -15% decline, investors can find good offers in almost every sector. These could be technology and communication services, as well as basic consumer goods, etc.
Instead, when stocks are falling, many investors are having difficulties in deciding to purchase. The fear whether they will make a mistake makes them incapable of deciding. Concerns appear that they will only increase the pain when buying the next share, which is on sale. However, opportunities exist when there is a downward movement of the markets and only the more decisive ones will take advantage of them.
The analysis of portfolio managers of Compass Global Trends of the three of the top positions in its portfolio is in agreement with the research of the well-known investment source Barron’s, which publishes the following analyzes:
Alphabet, the parent company of Google, since the beginning of this year fell with around -26%. This are 11 percentage points more comparing to the correction for S&P500, which is -15%. Despite this, almost nothing has changed for the company. The future still looks bright for it. Sales and revenues are expected to increase in 2023 with 15% and 19%, respectively, comparing to 2022. Google search engines are still dominating, along with the sales of ads. The company is still a cash flow machine. Alphabet generates $67 billion in free cash flow in 2021 and it is expected to reach about $339 billion between 2023 and 2025. As it is said, follow the money.
Meta Platforms (Facebook) underwent a big sale earlier this year, which led to a decline of -43%. The sales of the company fell below the Wall Street’s expectations because of the changes in Apple and the competition presented by TikTok. Meta will spend a lot of money in order to build the Metaverse and to live up to its name. Meta’s sales are expected to grow by approximately 16% in 2023 and they will generate about $31 billion in free cash flow.
Netflix’s shares were overestimated during the pandemic and when they returned to their normal price levels, they were quickly sold. Since the beginning of this year, the fall in their price is almost 68%, that is about half comparing to the beginning of the pandemic (20 March 2020). The competition for video streaming increased and it bit off Netflix’s users. The company recently suffered its first fall in subscribes since 2011. Despite this, now Netflix could be one good investment for those who search for undervalued shares. They are traded on levels which are 17.9 times the expected profit in the next twelve months – significantly below the average level for the last five years - 67.7 and a little over the average historical multiplier of S&P500. This is cheap “for a company with higher profit margins, a brighter future, and lower debt,” says Kapirin from RegentAtlantic.
Disclaimer:
This information is marketing material and does not present investment consultation, advice, investment research, or investment recommendation. The information is valid as of the issue date of the marketing material and may alter in the future. The value of the units in the collective investment schemes changes over time and it could be higher or lower from the value at the time of the investment. No profits are guaranteed and risk exists for the investors to not receive the full amount of their investments. Investments are not guaranteed by a guarantee fund which is created by the country or another form of guarantee. Information on the performance of the financial instruments in the past is not a reliable indicator for future performance. Therefore, it is recommended for investors to acquaint themselves with the Prospectus and the Document with key information for investors before making a final investment decision. You can find these documents in Bulgarian on the website of Compass Invest - www.compass-invest.eu, and you can request and get a free paper copy at the office of the management company at: Sofia, ul. George Washington № 19, 2nd floor, during every business day from 9 am to 5 pm. Future results are subject to taxation, which depends on the personal situation of each investor and may change in the future. A summary of the rights of the investors is available at the following hyperlink in Bulgarian: here. The mutual funds, which are managed by Compass Invest, are actively managed without following an index. We would like to inform you that Management Company Compass Invest can make a decision to terminate the offering of funds on the territory of the Republic of Bulgaria. The investment in units of mutual funds, in addition to benefits, carries certain risks like: liquid, operational, interest, currency, and political risk, as well as macroeconomical risk, currency risk, concentration risk, etc. The full information about risks can be found in the Prospectus of the respective fund.