This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
The stock market hasn't been an ideal place for investors to park their money in 2022 as major indices such as the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite are all in the red this year thanks to factors including a hawkish Federal Reserve, high inflation, and macroeconomic headwinds. But investors shouldn't forget that the stock market gives investors one of the best avenues to increase their wealth in the long run.
The average stock market return has been solid over the years and now may be a good time for investors to pick up some top stocks that have witnessed a brutal sell-off in 2022. If you have $500 to spare right now -- you don't need the money in the next few years, your high-interest debt is paid off, and you've got your emergency fund set -- then it could make sense to buy shares of Shopify (NYSE: SHOP), Snowflake (NYSE: SNOW), and Nvidia (NASDAQ: NVDA).
1. Shopify
Shares of e-commerce platform provider Shopify have dropped 73% so far in 2022, but investors have seen some respite of late thanks to impressive third-quarter results that were released last month.
Shopify's quarterly revenue jumped 22% year over year to $1.4 billion, driven by healthy demand for the company's merchant solutions. The merchant solutions business brought in $990 million in revenue last quarter, a 26% year-over-year jump and nearly 71% of total revenue. It's clear that online merchants are turning to Shopify's payments and shipping solutions to build their e-commerce businesses.
Shopify is looking to bolster its merchant solutions segment with the $2.1 billion acquisition earlier this year of Deliverr, which will help Shopify enhance its fulfillment network and allow merchants to manage inventories across multiple e-commerce platforms. Shopify also aims to offer two-day and next-day delivery options to its merchants in the U.S. following the Deliverr acquisition.
Shopify has reportedly gained access to 80 Deliverr partner-operated warehouses, and that number is expected to double by 2024. The company's move into e-commerce fulfillment could turn out to be a smart move in the long run. That's because the e-commerce fulfillment market is expected to clock nearly $200 billion in annual revenue by the end of the decade.
The pursuit of such lucrative markets helps explain why analysts are expecting Shopify's top line to increase substantially.
SHOP Revenue Estimates for Current Fiscal Year data by YCharts
With Shopify trading at 7.5 times sales right now, as compared to its 2021 price-to-sales multiple of 41, investors are getting a good deal on this e-commerce stock following its brutal sell-off.
2. Snowflake
Snowflake is another fast-growing company that has dropped big time in 2022, losing nearly 58% of its value so far this year. That's not surprising as richly valued growth stocks have fallen out of favor among investors.
Snowflake stock was trading at a whopping 97 times sales last year. Its sharp drop this year has brought the stock's price-to-sales ratio down to 27. While that's still rich, investors shouldn't forget that Snowflake is growing at a terrific pace to justify its rich valuation.
In the second quarter of fiscal 2023, which ended on July 31, 2022, Snowflake's revenue shot up 83% year over year to $497 million. The company also reported an extremely impressive net revenue retention rate of 171%, which indicates that Snowflake customers have increased their spending on the company's platform.
Another metric that points toward healthy demand for Snowflake's offerings is the massive growth in the company's remaining performance obligations (RPO), a metric that measures "the amount of contracted future revenue that has not yet been recognized." Snowflake's RPO shot up 78% year over year to $2.7 billion last quarter, which points toward a robust revenue pipeline.
It is not surprising that Snowflake's business is enjoying such solid growth. Snowflake's solutions allow customers to store data in a scalable manner across multiple cloud providers, keep the data secure, and generate actionable insights with the help of machine learning and artificial intelligence.
The company points out that its total addressable market could hit $248 billion by 2026, driven by growing demand for data warehousing, data science, and other applications. So, Snowflake is scratching the surface of a massive market, which explains why analysts are expecting its earnings to increase at an annual rate of nearly 296% over the next five years.
All this makes Snowflake look like an ideal bet for growth investors looking to buy a beaten-down company.
3. Nvidia
Graphics specialist Nvidia has fallen out of favor, down 46% over the past year. The chipmaker's decline isn't surprising given that it has fallen upon difficult times amid slowing personal computer (PC) demand.
Still, analysts are upbeat about Nvidia's prospects. The company's top and bottom lines are expected to start accelerating from the next fiscal year and it is expected to clock 23%-plus annual earnings growth for the next five years. A closer look at the markets that Nvidia serves will tell us why the chipmaker is expected to regain its mojo.
The first big opportunity for Nvidia lies in the data center accelerator market. Data centers require multiple accelerators such as graphics cards, server processors, and data processing units to operate in a fast and efficient manner. Nvidia is a key player in data center accelerators with its graphics cards powering the cloud offerings of top service providers.
The company has set its sights on the server processor market as well; its first data center central processing unit (CPU) is set to hit the market in 2023. Meanwhile, Nvidia is also finding traction in emerging applications such as the automotive market and "digital twins."
Investors shouldn't forget that the demand for graphics cards used in gaming PCs is expected to rebound in the long run, with Mordor Intelligence forecasting 14% annual growth in this space through 2026. So, savvy investors can consider capitalizing on Nvidia's drop to buy the stock before it flies higher.
Shares of the chipmaker have been in rally mode in recent days, sending the stock's earnings multiple up to 51, but that's still lower than its five-year average of 58. A strong set of results when it reports on Nov. 16 could give this semiconductor stock a shot in the arm.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
