Stocks are having a particularly difficult time in 2022 owing to a variety of factors, including elevated inflation, the prospect of a recession in the United States, and a worldwide economic downturn. The S&P 500 fell 18% thus far this year as a result of these headwinds. However, now may be an excellent moment for investors to acquire some outstanding businesses at reduced prices, especially given that a bull market could return within the next few months.
The end of the bear market is estimated by Bank of America to come in October 2022. When the bear market concludes, stocks are likely to embark on a multiyear bull run, according to historical patterns. If that’s the case, investors may wish to consider buying Nutanix (NTNX 0.90%) and Lam Research (LRCX -0.21%), which are not only cheap right now, but also have excellent prospects that could supercharge their stock prices in a bull market. Let’s look at why.
Despite its rapid expansion, Nutanix stock tumbled by 52% in 2022, according to market observers. Given the company’s outstanding rate of development, it may come as a surprise that its revenue increased 17 percent year over year in Q3 of fiscal 2022 (which ended on April 30, 2022). Last quarter’s adjusted loss was $0.05 per share, compared with $0.41 per share in the year-ago period.
There is a considerable demand for Nutanix’s business solutions, which help clients in migrating to a hybrid cloud model that mixes public and private cloud resources.
According to Mordor Intelligence, the hybrid cloud market may expand at a compound annual growth rate of 21% through 2026. Nutanix is in an excellent position to capitalize on this sustained incremental growth, as it is the second-largest player in the market with a share of almost 25 percent. Furthermore, examining Nutanix’s customer base and billing growth reveals that any slowdown will most likely be brief.
Customer counts and spending at Nutanix increased in the recent quarter. Last quarter, the firm’s customer base rose 13% year over year to almost 22,000 individuals. Furthermore, client spending grew considerably. That was reflected by the fact that last quarter 1,747 consumers made more than $1 million in lifetime bookings, up 22% compared to a year ago. By 2025, according to Nutanix’s projections, its addressable revenue potential in hybrid cloud and adjacent markets could be worth $61 billion as opposed to $39 billion this year.
Throw the company’s strong market position into the equation, and it is easy to see why the company should continue to enjoy a good balance of client expansion and increased spending. Finally, now may be a good time to buy this cloud specialist before it goes on a bull run, with its stock trading at just 2.1 times sales as compared to its five-year average sales multiple of 4.95.
2. Lam Research
Lam Research, which specializes in computer processors for notebook computers, has also suffered a significant loss of value this year, dropping 37%. As a result, Lam is presently priced at 14 times trailing earnings, versus the S&P 500’s multiple of 20.4.
Lam’s stock is an enticing buy right now because the firm will play a key role in resolving a major issue: the worldwide chip shortage. The company manufactures, refurbishes, and services integrated circuit manufacturing equipment that is used to fabricate microchips. Not surprisingly, Lam’s revenue and earnings have risen considerably over the last few years as semiconductor demand has grown significantly, boosting demand for manufacturing tools.
Samsung, Micron Technology, SK Hynix, and Taiwan Semiconductor Manufacturing (commonly referred to as TSMC) are among Lam’s clients. These chipmakers are preparing for significant financial investments in the years ahead. Micron has announced that it will invest $150 billion in manufacturing and research and development by year 2030, while TSMC has increased its spending expectations significantly.
The healthy end-market potential explains why Lam’s earnings are anticipated to grow at a double-digit rate for the next five years, with an average annual growth of nearly 14% during that time. 2022 revenue is expected to climb 15% to $16.8 billion, followed by a 16% surge in 2023.
All of this indicates that investors should not pass up the opportunity to buy Lam Research because it has a potentially strong end-market potential.