2 stocks to buy before they start to crash the market
Share price Micron Technology (NASDAQ:MU) and Soft (NYSE:CHWY) were hammered into 2022 during the broader market correction, but each could start to take off when companies release their quarterly earnings reports on Tuesday, March 29.
Micron Technology is heading into its second quarter fiscal 2022 results with several tailwinds, such as growing demand for memory chips, tight supply and rising prices. And Chewy is taking advantage of the growing online pet products market that still has plenty of room to grow.
That’s why investors looking to buy potential growth stocks amid the tech sell-off should take a closer look at Micron and Chewy shares, which are down 16% and 22% respectively so far in 2022. Let’s see why these two stocks might start crushing the market sooner rather than later.
1. Micron Technology
Wall Street expects $7.52 billion in revenue from Micron for the second quarter of fiscal 2022, along with earnings of $1.97 per share. The consensus estimates are slightly above the midpoint of the company’s forecast of $1.95 per share in earnings on $7.5 billion in revenue. It should be noted that analysts have significantly raised their earnings expectations for Micron over the past three months thanks to the strong outlook it provided in December 2021.
The good part is that the company seems able to meet the increased expectations thanks to the favorable memory market conditions. Specifically, the spot price of NAND flash memory has been on the rise since the start of the year, while the price of dynamic random-access memory (DRAM) has started to increase since February 2022, according to third-party estimates. .
The price of NAND flash memory is expected to increase by 5% to 10% in the second quarter of 2022, according to memory market research firm TrendForce. The company previously expected a 5% to 10% drop in NAND flash prices in the second quarter. Meanwhile, the price of DDR3 DRAM is expected to either remain stable or increase by up to 5% in the second quarter due to tight supply.
At the same time, the demand for DRAM and NAND flash memory is increasing. TrendForce estimates that demand for DRAM bits is expected to increase by 17% in 2022, but Micron CEO Sanjay Mehrotra predicts chip shortages to continue through 2023. As a result, the DRAM market is expected to continue to grow. benefit from higher prices in 2022. The NAND flash market, meanwhile, is expected to see a 7.4% increase in revenue this year thanks to a 30.8% increase in demand, although the scenario of tight supply could lead to stronger growth.
So the stage seems to be set for Micron Technology to deliver a strong quarterly report. The company’s forecast suggests that its revenue is on track to increase 20% from the year-ago period, while earnings per share could nearly double. The improving outlook for the memory market could help it beat expectations, set the stage for strong guidance and provide a boost to the stock price.
Accordingly, it might be a good idea for investors looking to buy a growth stock on the cheap to accumulate shares of Micron Technology. They are trading at just 12 times trailing earnings and 8.5 times forward earnings, indicating the stock is highly valued relative to the market. Nasdaq 100earnings multiple of nearly 33.
Shares of Chewy have shown signs of recovery over the past few days, and the rally could intensify after the company reports its fourth quarter fiscal 2021 results next week. Indeed, Chewy is on track to end fiscal 2021 with solid revenue growth.
Analysts expect the company to generate $2.42 billion in quarterly revenue, which is in line with Chewy’s forecast of $2.40 billion to $2.44 billion in revenue that was released when the company released its fiscal third quarter results. This would translate to 18% year-over-year growth at the midpoint. Chewy expects to end fiscal 2021 with a 25% increase in revenue.
One of the reasons Chewy may be seeing better-than-expected sales numbers is the increase in online shopping for pet food and supplies. According to market researcher Packaged Facts, the e-commerce channel accounted for 36% of pet product retail sales in 2021. An estimated 9 million customers joined the pet food shopping channel online between fall 2019 and fall 2021, and Chewy made the bulk of that growth.
The overall pet food and supplies industry generated $50 billion in revenue last year, indicating that the online channel accounted for $18 billion in sales. Chewy’s annual revenue forecast of $8.92 billion suggests the company has cornered nearly half of that market. Packaged Facts points out that the online channel could account for 54% of pet food retail space by 2025, so Chewy is sitting on a secular growth opportunity.
Unsurprisingly, investors expect the company’s bottom line to grow at an annual rate of 93% over the next five years. So it may only be a matter of time before Chewy’s stock starts to soar again. The stock has been crippled by supply chain issues lately, with the company missing out on potential sales due to product shortages. In addition, rising labor costs weighed on net income.
Management expects supply-side headwinds to affect its near-term growth, but investors should not lose sight of the bigger picture. The company controls much of the lucrative (and growing) pet products space online, has a base of over 20 million active customers, and is seeing a nice uptick in spending on its products and services.
All of this makes Chewy a valuable stock as it trades at only twice sales, less than the S&P500of 2.95, despite its tremendous long-term growth potential. A stronger-than-expected earnings report could push the stock higher and make Chewy relatively more expensive, so now seems like a good time for investors.
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Harsh Chauhan has no position in the stocks mentioned. The Motley Fool owns and endorses Chewy, Inc. The Motley Fool has a Disclosure Policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.