Nasdaq Bear Market: 3 stocks to buy freehand

The year is coming to an end and for many investors it will be a year to forget. Unless things change significantly, the Nasdaq Composite it is likely to be down for the year and will post its largest annual decline since 2008.

However, it’s not all bad news. Bad years for the Nasdaq often turn out to be good years to start an investment. After declines in 2008 (-41%), 2011 (-2%) and 2019 (-4%), the Nasdaq recorded an average gain of 32% the following year.

There’s very likely to be bargains waiting to be found in the wreckage of this year’s tech stocks. Here are three Nasdaq bear market stocks that, according to three Motley Fool contributors, are worth buying bare-knuckle before the end of the year: PubMatic (PUBM 0.47%), GitLab (GTLB -4.59%)And Snowflake (SNOW -3.46%)

Image source: Getty Images.

Get in before investors spread the word about this advertising stock

healy (PubMatic): PubMatic is not yet a household name as a company or as a title. However, it plays an increasingly important role in the digital advertising market and is rapidly gaining recognition in that industry.

The company helps advertisers find audiences across all platforms and improve content monetization by working on the sales side of the business. It leverages a hardware and software platform that manages what it dubbed the “supply chain of the future.” Within this ecosystem, users can manage multiple vendors on a single platform. Investors should also note that it does not compete with The commercial countera company that covers the buying side of the digital advertising business.

Fortune Business Insights projects a sales-side compound annual growth rate of 24% through 2029. This growth rate should bode well for PubMatic eventually.

Unfortunately for its shareholders, PubMatic is the victim of an economic slowdown that has temporarily depressed the advertising market. It generated $65 million in revenue in the third quarter of 2022, an 11% year-over-year growth. While that may appear to be steady growth, this is a dramatic slowdown from the 54% increase in revenue in Q3 2021.

In addition, third quarter 2022 non-GAAP net income fell 26% year over year to $12 million. Rising costs and expenses have led to that decline. Cost of revenue increased 35%, while income taxes increased 75%.

Additionally, PubMatic reduced its 2022 revenue projection to between $257 million and $260 million. This is an 8% drop from the previous quarter’s forecast and likely contributed to the 14% drop in the share price in the following trading session.

However, that drop took the stock’s P/E ratio to 14. This is down from over 140 in early 2021 and is below the digital advertising pioneer Alphabet at 17 times the earnings.

Furthermore, while the stock’s condition now looks bleak, its position in the digital advertising market likely positions it for an eventual recovery. Given PubMatic’s growth potential, investors should consider using this temporary pain as an opportunity to buy this under-the-radar stock at a discount.

GitLab can survive this bear market and thrive in the long run

Justin Pope (GitLab): GitLab is a DevOps platform where developers build, test, and deploy software. It can take many people and teams working together to create a software program. Everyone might code differently or use different tools; the pieces may not work when you put them together.

GitLab is like a sandbox where everyone builds, keeping things “apples to apples” and organized. This way, the pieces fit together much better, speeding up the development process. It runs on Git, an open source revision control software that tracks changes in computer files. GitLab offers an essential product for free but charges for several features and services that help organizations use Git.

The company has a software-as-a-service (SaaS) business model, with 5,864 customers spending at least $5,000 annually. Its recurring revenue has a run rate of $404 million as of July 31, a 74% increase from a year earlier. Management estimates its addressable market is $40 billion today, so there’s still plenty of potential for future growth.

The stock is down 68% from its November 2021 peak, taking its price-to-sales (P/S) ratio to 14. Investors seek safety in a bear market, which usually calls for profits.

PS GTLB ratio graph

GTLB PS Ratio data from YCharts

GitLab is not yet profitable and has reported a free cash flow level of negative $75 million over the past four quarters. However, the company has no debt and $930 million in cash on its balance sheet, plenty of capital to run its business in the short term.

GitLab’s growth underscores its value to businesses, and Wall Street may worship GitLab again when the market eventually recovers.

It’s time to bet on the service that helps connect the clouds

Jake Lerch (Snowflake): Bear markets offer opportunities and Snowflake looks to be one of the best today.

His business can be difficult to understand. In a nutshell, here’s how it works: Organizations including businesses, schools and non-profits are moving their workflow to the cloud. As they do, they often bring in multiple cloud vendors to address different segments of their business. The three largest cloud providers are Amazoniaof AWS, Microsoft‘s Azure, and Alphabetit’s Google Cloud.

There is one significant drawback to this type of arrangement: greater potential for data siloing. Using multiple vendors complicates the process of aggregating and analyzing data in cloud systems. Snowflake makes money by helping organizations solve this problem.

By intermediating between various cloud providers, platform-agnostic Snowflake helps organizations “see” all of their data at once, allowing them to combine, study and draw better conclusions. Examples include enabling researchers to develop better medicines, food distributors to better match supply and demand, and airlines to offer the lowest and most competitive fares.

It’s a fantastic deal and has caught the eye of famed investor Warren Buffett. Berkshire Hataway owns more than 6 million shares, valued at $773 million. It’s a rare tech investment for Berkshire, which has traditionally shunned the industry. Still, it’s clear that Buffett (and most likely his Berkshire lieutenants Ted Weschler and Todd Combs) have faith in Snowflake and his business model.

Snowflake is relatively small right now, with revenues of just $1.64 billion over the past 12 months. However, revenue is currently growing at over 82% annually. While the company isn’t profitable, its balance sheet is strong. Snowflake has nearly $4 billion in cash and less than $250 million in debt. This means that any cloud spending slowdown or long-lasting recession shouldn’t put Snowflake in any immediate danger.

Meanwhile, Snowflake’s book price value fell to 7.6, down from 21.8 a year ago. This means investors can buy stocks much cheaper today than before. So if you’re looking for a name that has a lot of growth and has the endorsement of one of the most popular investors in the world, Snowflake is a name to consider.

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