2 oversold stocks to buy in the Nasdaq bear market

These household names offer phenomenal value to investors.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The tech-heavy Nasdaq Composite index is officially in a bear market after dropping 26% year to date, but some investors are on the hunt for bargains that could spike in value once more optimism returns to the markets. Looking specifically at the 100 largest non-financial companies listed -- otherwise known as the Nasdaq 100 -- Facebook parent Meta Platforms (NASDAQ: META) and Netflix (NASDAQ: NFLX) rank toward the bottom of the list in year-to-date performance.

Both companies are facing their share of near-term headwinds. Revenue growth is decelerating at Meta due to weakening trends in the advertising market, while investors are wondering if Netflix can resume growing subscribers in a more competitive streaming market.

Still, if these ubiquitous brands recover, both stocks could rebound sharply once general market sentiment improves. Let's explore why it's a bet worth making.

Meta Platforms

Shares of the Facebook parent are down 56% from the 52-week high of $384 after the social media giant reported disappointing earnings results to start the year. Investors are worried about slowing growth amid a weak advertising environment, which is the primary revenue source for the company, but a slow ad market is only half of Wall Street's concern.

CEO Mark Zuckerberg has made a big bet on virtual reality (VR) with the company's Oculus brand of headsets. Management sees the metaverse as a major opportunity that creates a perfect pairing with Oculus VR. But the market doesn't like that these long-term bets are taking a bite out of the bottom line in the near term.

On top of weak single-digit revenue growth in the first quarter, Meta also reported a 25% year-over-year drop in operating profit. Total expenses increased 31% year over year, driven by technology infrastructure and hiring to support growth initiatives in the family of apps (Facebook, Instagram, etc.) and Reality Labs (virtual reality).

Zuckerberg and his team are confident these investments are going to lead to something promising as previous bets on mobile and the Stories feature eventually put Facebook on a solid growth trajectory years ago.

Meanwhile, the stock is a steal trading at a low price-to-earnings (P/E) ratio of 13. At this valuation, the market is basically saying Meta's days of growth are over, but is that expectation reasonable?

At this valuation level, investors don't need Meta to grow at high rates to earn a decent return on investment. Whether Zuckerberg is right about the metaverse doesn't matter at this point. The stock will likely rebound once advertising spending comes back, and that's a good bet given the 2.87 billion daily active users across Meta's family of apps.

Netflix

One of the most-followed Nasdaq stocks has taken a beating like no other in this bearish environment. Netflix reported its first subscriber decline in years last quarter, leading the stock to nosedive.

Buying shares of this top entertainment stock might take some guts at this point, especially with management guiding for another loss of two million subscribers for the second quarter. Like Meta Platforms, investors don't have much to lose by adding a small position in Netflix at these levels, while the upside could be big.

The global streaming market is still on an upward trajectory. In fact, the Motion Picture Association's 2021 Theatrical and Home Entertainment Market Environment (THEME) report mentioned that the digital streaming marketplace accounted for 72% of the combined theatrical and home entertainment market, representing a sharp increase from 46% in 2019.

As the largest streaming provider with a growing library of content, that is good for Netflix. The company is more profitable than it's ever been with an operating profit margin hovering around 20%. The stock's P/E is also a modest 17.3 -- the cheapest Netflix has traded on a P/E basis in nearly a decade.

Investors are underestimating how that improved profitability will provide management with more resources to invest in content and other initiatives to accelerate growth and win over more subscribers. The streamer's entry into video games only gives investors a hint of how Netflix might evolve over the long term.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Ballard has positions in Netflix. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and recommends Meta Platforms, Inc. and Netflix. The Motley Fool Australia has recommended Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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