2 Stocks to Buy for a Market Sell-Off
The tech-heavy Nasdaq Index is officially in correction territory. The index has fallen nearly 12% from its highs at the time of this writing after many high-growth tech stocks have been hammered the past three months. Most of this fall in the index has been in 2022 -- the Nasdaq has fallen almost 10% year to date.
For long-term investors with a five-year time horizon, declines like these can be great opportunities to buy stocks at a discount. Global-e Online (NASDAQ: GLBE) and DigitalOcean (NYSE: DOCN) , for example, are all down 30% or more since the start of 2022 and 55% or more off their all-time highs. However, these are still high-quality stocks that could see major growth over the next five years, and I think today's prices provide a good buying opportunity for long-term investors.
1. Global-e Online
Global-e Online wants to make it easier for e-commerce businesses of all sizes to expand, and the company helps them do so by unlocking global e-commerce as a possibility for them. There are many barriers for companies when it comes to expanding into a new region, but Global-e helps companies maneuver the complex tax process, language, and payment barriers that often come with international expansion. The company also has partnerships with over 20 shipping providers to ensure hassle-free returns and logistics processes.
The company has seen amazing adoption of its services. International e-commerce is exploding, and it is expected to continue to grow rapidly over the coming years. The International Trade Administration expects that global e-commerce will expand from 18% market share in 2020 to 22% in 2024, resulting in a total of $6.4 trillion in global e-commerce spending by 2024.
Global-e is not profitable, losing over $54 million in the first nine months of 2021, but most of those losses came from expenses so the company can grow and become a leader in the global e-commerce market. In 2021, there was an estimated $4.9 trillion in retail e-commerce, which was likely why Global-e was able to grow its revenue 96% year over year during the first nine months of 2021, reaching $163 million.
Global-e has been a highly valued stock its entire life as a public company, but the valuation has now fallen to a more reasonable level. The company currently trades at 20 times sales, which is much lower than the 30 to 50 times sales it has traded at the majority of the time it has been public. At this lower valuation, investors might want to consider adding this company to their portfolio while it is 61% off its all-time highs.
DigitalOcean has also seen its share price sink, falling over 57% off its all-time highs. Now, it is trading at an appealing 12.67 times sales -- a valuation not seen since August 2021. The company has had a fall from grace since shares shot up in late 2021, but the business is still strong.
DigitalOcean is a cloud provider for small and medium-sized businesses (SMBs), providing services and resources that the big cloud providers like Amazon 's AWS have failed to provide. The big cloud providers do have SMB offerings, but they have been incapable of providing what SMBs want: a simple cloud platform with lots of customer support and resources to help them thrive. Many SMBs are not cloud experts and only need basic tools to start a cloud presence, and DigitalOcean has rapidly become the leading provider in this niche.
The company has nearly 600,000 SMB customers that have been attracted by DigitalOcean's core products and transparent pricing structure. DigitalOcean also offers customers access to free tutorials from expert developers who explain cloud concepts like coding, database management, or other topics beginner developers may need help on.
As a result of this unmatched support and focus on what SMBs want, the company has thrived financially. In Q3 2021, DigitalOcean grew its revenue 37% to $111 million and improved its net loss from $10 million in the year-ago quarter to $2 million.
The SMB space might not sound like a lucrative niche to operate in, but it is expected to grow from $44 billion in 2020 to $116 billion in 2024, with over 14 million new SMBs joining the market every year. With so much growth in this niche market, I think DigitalOcean will be able to capitalize on it as the leader , and today's prices provide a nice buying opportunity.
A word of caution
While both of these stocks are trading at appealing prices today, it is critical to recognize that they could keep falling. Investors will seldom be able to buy precisely at the bottom, which is why investing small amounts multiple times into a stock would be a smart move with volatile companies like these. If the market continues to sell off like it is right now, you will want to invest in these stocks as they become cheaper, but nobody knows how far these will drop.
If you decide to invest in these companies today, that is why it is important to invest a small portion of a full position today and be ready to take advantage of a potential fall over the coming months.
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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. Jamie Louko owns Amazon and Global-e Online Ltd. The Motley Fool owns and recommends Amazon and Digitalocean Holdings, Inc. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy .