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2 Top Bargain Stocks Ready for a Bull Run

The Motley Fool
The Motley Fool
 2022-01-17

Many technology stocks took it on the nose in 2021. Cathie Wood's high-growth, tech stock-focused exchange traded fund (ETF) ARK Innovation (NYSEMKT: ARKK) took a hit last year and lost 24% of its value. That was during a period when the S&P 500 was soaring 27%, or over twice its historical averages.

The tech sector is stumbling out of the gate in 2022 as well, already down almost 10% versus an essentially flat index. We're not even two weeks into the new year, and Wall Street foresees one of the biggest sector rotations out of technology in more than 25 years.

The tech sector's outlook

Bloomberg quotes Oppenheimer & Co.'s head of institutional equity derivatives Alon Rosin as saying that, while large cap tech stocks did well last year, "Now we have multiple compression concerns across all tech with the Fed's liquidity spigot coming into the tightening drumbeat ahead."

Rosin's statement may make investors nervous about diving into tech stocks. However, his words could also suggest there are some solid tech names trading at a significant discount, suggesting a value investor may want to start their search in the tech sector for an investment opportunity that can lead to explosive gains.

The following two tech companies were previously high-flying stocks that lost 50% or more of their value last year. They now look poised for a run-up for any investor willing to grab the bull by the horns.

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Image source: Getty Images

Alibaba

I'll admit to having reservations about buying any Chinese stock these days because of the communist government clamping down on capitalist businesses operating in the country. Yet some businesses are so important to China's economy that regulators and government officials won't kill the golden goose that props up their system.

E-commerce behemoth Alibaba (NYSE: BABA) is a case in point. Like people in much of the developed world, Chinese consumers have been conditioned to shop online for many of their daily needs, and on Alibaba's platform, they are readily able to find what they're looking for.

For the six-month period ending last September, Alibaba reported a 33% year-over-year increase in its commerce-segment revenue, which hit $54.5 billion and accounted for 86% of total sales for the period. The segment also accounted for all of Alibaba's operating income and adjusted earnings before interest, taxes, depreciation, and amortization ( EBITDA ). Even excluding a late-2020 acquisition in the division, Alibaba's revenue was still 20% higher for the six-month time frame.

During the 2021 Singles Day , an 11-day consumer-spending extravaganza, the e-commerce giant recorded $84.5 billion in gross merchandise volume (GMV) sold. In comparison, Amazon.com (NASDAQ: AMZN) posted a record $11.2 billion in sales over its two-day Prime Day event.

Because the company is so big and still growing, it attracted the scrutiny of Beijing , which began targeting it after founder Jack Ma criticized regulators. The crackdown caused Ma to go underground for a while, but Alibaba was still penalized for "monopolistic" behavior, receiving billions of dollars in fines for various infractions.

The stock has fallen 50% from its 52-week highs (it had been a lot lower until recently), and even Berkshire Hathaway 's (NYSE: BRK.A) (NYSE: BRK.B) Charlie Munger thought the stock got too cheap to ignore and began buying up shares. The stock trades at 19 times trailing earnings and a remarkable two times next year's estimates.

Alibaba also recently announced a turnaround plan to reinvigorate sales growth by targeting older shoppers, adding more VIP members (who tend to spend more than non-members), and using artificial intelligence and automation to increase advertising efficiency.

Even a chastened Alibaba is still a massive growth machine that looks ready to run again.

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Image source: Getty Images

Fastly

Edge cloud-services provider Fastly (NYSE: FSLY) has been trying to regain its footing since a service outage last summer took much of the internet offline. Thousands of government, social media, and news sites went down, leaving users in the dark and out of touch.

While the problem, blamed on a "coding error," was resolved relatively quickly, it showed how critical Fastly is to the smooth operation of the internet. Even Amazon, with its own massive web services business, was impacted by Fastly's outage.

Beyond just that snafu, Fastly is also contending with costly investments it needed to make in its content-delivery network , which, with growing employee headcount, has hit its bottom line hard.

Fastly has never been profitable. Net losses for the third quarter totaled $56 million, or $0.48 per share, versus a loss of $24 million, or $0.22 per share, last year. Even on an adjusted basis, losses widened from $0.04t o $0.11 per share.

Yet its business is growing. Revenue was up 23% to $87 million, and it remains committed to hitting $1 billion in annual sales by 2025. As business continues moving its data to the cloud, Fastly's clientele continues to grow, reaching almost 2,750 customers at the end of Q3.

Perhaps offering Fastly one of its biggest levers to pull for future growth is the advent of the metaverse , the virtual world where people can interact with one another, and with businesses and brands.

Cathie Wood of ARK Invest has pegged the metaverse as a multitrillion-dollar market, while Morgan Stanley says the total addressable market could be $8 trillion. Some believe it could be worth nearly double that figure.

Fastly can capitalize on it because of the need for computing power to design, build, and operate those virtual 3D environments. Key will be reduction in latency, or the lag that occurs in the hyperstylized world of make believe being developed. Fastly's technology helps minimize such problems by ensuring data is delivered as quickly, efficiently, and securely as possible.

The tech stock has seen its shares crater 73% from the highs hit last April. While any stock can theoretically hit zero, Fastly instead looks like it's primed to run higher in the years to come.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns and recommends Amazon, Berkshire Hathaway (B shares), and Fastly. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2022 $1,940 calls on Amazon, short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy .

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