January was one of the worst months for the stock market since March 2020 when the pandemic first affected financial assets. The Federal Reserve appears intent on raising interest rates several times over the coming year. The effort to stamp out inflation threatens to drain liquidity out of growth equities, as well.
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However, with many leading growth firms down by a third or more since October 2021, these fears are likely already fully priced into the situation at current levels. As such, February appears to be an auspicious time to pick up growth shares after their steep decline. These look like five of the best stocks to buy for February:
— Snap Inc. (ticker: SNAP)
— Netflix Inc. (NFLX)
— Spotify Technology SA (SPOT)
— Unity Software Inc. (U)
— DraftKings Inc. (DKNG)
Snap Inc. (SNAP)
It’s fallen out of the spotlight lately, but Snapchat keeps picking up steam. The youth-focused social network has become surprisingly successful. Some analysts see it generating more than $4 billion in full-year 2021 revenues and turning a modest profit on an accounting basis when it reports full-year earnings after the bell on Feb. 3. For 2022, average analyst estimates put full-year revenue at about $5.5 billion, while earnings per share could jump to more than $1.
To be sure, there are still some questions about the long-term resilience of the business model. Snapchat faces a tough challenge selling advertisements compared to larger rivals such as Alphabet Inc. (GOOG, GOOGL). However, Snapchat has far exceeded most people’s expectations up until now. And with the stock down about 60% from its 52-week highs, it’s unlikely to offer a much better dip-buying opportunity anytime soon.
Netflix Inc. (NFLX)
The king of video streaming has fallen on hard times. Shares of Netflix had dropped about 29% year to date as of market close on Jan. 31, which is simply incredible for a company of its size and scope. And sure, Netflix has failed to live up to analysts’ lofty expectations over the past few months. The buzz from the company’s hit program “Squid Game” has faded and the firm now faces tough comparisons against earnings from the pandemic-driven boom of last year.
With folks heading back to the office or school, Netflix’s new subscriber stats will likely dip in 2022. However, for investors playing the long game, the clear leader in video content has fallen by about 39% from its 52-week high. Taking advantage of that dip, famed investor Bill Ackman recently took a large position in Netflix. With fresh content, such as a new season of “Ozark,” now arriving, Netflix could soon regain its momentum.
Spotify Technology SA (SPOT)
NFLXNetflix is hardly the only streaming company that is on sale now. The leader in music streaming, Spotify, has also gotten pounded. Shares dipped below $180 at the end of January before finally catching a bid over the past week. The company has also faced concerns over slower user growth as the stay-at-home trend winds down. Looking at the bigger picture, however, it’s hard to see what could conceivably stop Spotify’s ascent as the leading audio platform on a global scale.
The company’s efforts to assemble the largest music and podcasting platform, along with unparalleled distribution deals with international telecom providers, give it a huge edge over rivals. The issue with Spotify is that it lacks near-term profitability. But as the dominant provider of streaming audio, it should be able to raise its profit margins over time. The current controversy around the Joe Rogan podcast offers a compelling buying opportunity for SPOT stock.
Unity Software Inc. (U)
Video game and 3D graphics software firm Unity has been decimated over the past two months. The firm shares the misfortune of being owned by Cathie Wood’s Ark Invest, along with other such disruption-focused investors. With the tide flowing out, investors have been dumping everything associated with this style of investing.
Regardless, Unity has a ton going for it. Its core gaming business looks more attractive than ever. Facebook parent company Meta Platforms Inc. (FB) announced a huge push into the metaverse last fall. Unity — with its graphic engine that works across PCs, consoles, phones and virtual reality — is best positioned to provide the operating system for this new platform. Meanwhile, with Microsoft Corp.’s (MSFT) plan to buy Activision Blizzard Inc. (ATVI), that should provide a solid bid for other gaming companies. Unity’s push into other 3D graphics markets such as real estate and e-commerce should also bear fruit.
DraftKings Inc. (DKNG)
Just a year ago, online gaming was one of the hottest sectors of the stock market. Now, however, virtually all the names in that segment are far below their highs. The reason why is simple: There’s too much competition. Gaming firms are offering massive sign-up bonuses to attract new clients, which crushes near-term profitability. Over the longer term, however, there will likely be massive industry consolidation. Already, lower-tier players such as Wynn Resorts Ltd. (WYNN) are unloading their online gambling divisions to avoid piling up more red ink.
As the weaker entrants leave the industry, the online gaming market should consolidate around leaders such as DraftKings and Flutter Entertainment PLC’s (PDYPF) Fanduel Group. The business model is sound as long as there isn’t too much competition. With DraftKings shares down by about 70% from 52-week highs, any catalyst could lead to a solid rebound. And for said catalyst, look no further than the Super Bowl on February 13.
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5 of the Best Stocks to Buy for February originally appeared on usnews.com
