The NASDAQ 100 is a popular index among investors interested in the growth sector. Most of its companies are in the technology sector, and they include popular names like Tesla, Microsoft, and Apple. In the past decade, the index has outperformed its other blue-chip indices like the Dow Jones and the S&P 500.
In 2021, the index also did well, as shown above. In this article, we will look at some of the best Nasdaq 100 index stocks to buy after their dramatic crash.
Why buy stocks at their 52-week lows?
A common question is why I would recommend investing in stocks that have crashed to their lowest levels in 52-weeks. The answer is that this is where you find bargains.
Historically, stocks that crashed in one year tend to have a strong recovery in the next year. This is known as statistical arbitrage. At their 52-week lows, you can also find some good quality companies that are trading at relatively lower multiples. This is known as bargain hunting.
Most importantly, investors are often guided by fear and greed. The main reason why good quality stocks crash is that fear has spread, pushing more investors to sell. A common saying in the market says that you should always buy when other investors are fearful and sell when they are greedy.
Peloton Interactive (PTON)
Peloton Interactive is a relatively popular company that is in the fitness industry. The company sells high-quality treadmills and bikes. It then makes most of its money selling video subscription services. Because of its business model, the company’s share price soared to a record high during the pandemic. With gyms closed, many people bought its equipment and subscriptions.
Indeed, the company saw its revenue surge during the pandemic. Its revenue rose from more than $1.8 billion in 2019 to more than $4 billion in 2020.
In 2021, however, the stock crashed (see the chart below) and became the worst performer in the Nasdaq 100 index. Its stock has fallen by more than 70% this year.
There are three main reasons for this. First, there is an overall rotation from stocks that did well during the pandemic to those that lagged. For one, as the world reopens, demand for products like home gyms and streaming services is expected to decline.
Second, the company has faced significant supply disruptions since it buys its products in Asia. Therefore, while demand has been there, the firm has struggled to meet it. This explains why it is launching a manufacturing division in the US.
Finally, there has been significant competition in the industry. Still, we believe that Peloton is a good franchise that will likely recover in the coming years.
Square is a leading fintech company that offers a number of solutions. Its most basic product is its Point of Sale (PoS) systems that are used by retailers. The firm also enables companies to collect sales on the internet. A fast-growing business is Square Capital, where the company provides financing solutions to small businesses.
Square also owns Cash App, the fast-growing peer-to-peer payment company. It also makes a lot of money facilitating cryptocurrency trading.
The Square stock price has crashed this year. It has fallen (see the chart below) by more than 37% from its year-to-date high and is currently trading at its lowest level since November 2020. It is not alone. Other fintech stocks like PayPal, Remitly, and Shift4Payments have also crashed.
The biggest concern among investors is that Square’s growth is slowing down while competition is rising. There are also concerns that Square overpaid in its acquisition of AfterPay, an Australian buy now, pay later company. It is spending more than $37 billion on this purchase.
Still, Square is a relatively strong company that has a good market share in its industry. Analysts have a buy rating on the stock, and they expect that it can rise by more than $100 from the current level.
DocuSign is a company that pioneered the digital signature sector. Today, the company’s services are used by thousands of firms from around the world. Like Peloton, the company was in high demand during the pandemic as more companies embraced its technology. This demand pushed its total revenue from $974 million in 2019 to more than $1.4 billion in 2020.
There are several reasons why the company’s stock price has crashed (see the chart below) by almost 60% from its highest level this year. First, like Peloton, it has become a victim of the rotation from lockdown stocks. Second, the company’s growth has slowed substantially in the past few months. Third, there is growing competition in the industry. Some of the companies that have introduced their e-signature solutions are Adobe, Box, Microsoft, and Dropbox.
Still, Docusign has a strong market share in the industry, and I believe that its stock will rebound in 2022. All it needs is a strong quarterly performance.
Zoom Video was one of the biggest winners of the Covid-19 pandemic. The company experienced strong growth as people turned to video conferencing. Many schools also adopted the platform for learning purposes. As a result, its stock soared to almost $600. This gave it a market capitalization of more than $100 billion.
This year, the stock has collapsed (see chart below) from almost $600 to about $183. It is also trading at the lowest level it has been since June 2020.
Investors are worried about the company’s growth as demand for video conferencing wanes. Also, there are concerns about competition from leading companies like Microsoft, Facebook, and Cisco.
While the Zoom stock price has dropped, there is a likelihood that it will bounce back in the coming year. It is a strong company that has a good market share in its industry. There is a likelihood that it will bounce back in the coming year.
While the Nasdaq 100 index has done well this year, some of its biggest names have lagged. While some of these stocks will continue falling, there is a likelihood that many of them will bounce back in 2022. We believe that the four names mentioned in this article will be among them.