Let’s just forget 2022 ever happened. Over the last year, inflation hit a 40-year high. There were fears of a recession materializing, and those fears have persisted . Nearly 63% of U.S. consumers were living paycheck to paycheck. Markets were crushed. Home sales began to fall at the fastest rate in decades. Retail sales dropped, and the Federal Reserve’s interest rate hikes became far too aggressive. Some of the biggest stocks in the market plummeted. The good news is some of 2022’s biggest losers could be among 2023’s biggest winners. Here’s a list of seven top stocks to buy on the dip.
| TGT | Target | $148.37 |
| AMD | Advanced Micro Devices | $64.20 |
| NFLX | Netflix | $291 |
| DDOG | Datadog | $72.64 |
| TSLA | Tesla | $121.50 |
| ARKK | ARK Innovation ETF | $30.60 |
| SQ | Block | $61.50 |
Target (TGT)
Since January, Target (NYSE:TGT) plummeted from about $227.50 to $148.37. But that’ll happen amid sky-high inflation and with many Americans living paycheck to paycheck.
Even worse, Target’s third quarter earnings per shares came in below analysts’ average estimate. Specifically, it reported EPS of $1.54, which was below the average outlook of $2.16.
The company’s margins sank, and TGT lowered its Q4 guidance. Target’s operating income fell almost 50% to $1 billion. The only good news was that the retailer’s revenue jumped to $26.5 billion, which was slightly above the mean estimate of $26.4 billion.
However, don’t write the stock off just yet. For one, Target has a solid dividend yield of 2.91%, and it also just recently increased its quarterly dividend to $1.08 a share.
Secondly, its latest disasters will be temporary. Target still has a strong history of earnings growth, and just reported its 22nd consecutive quarter of comparable sales increases. Also worth noting is that research firm Bernstein just initiated coverage of the shares with an “outperform” rating on the stock and a price target of $190.
The firm believes that Target’s fundamentals are still sound, so consider TGT one of the best stocks to buy on the dip.
Advanced Micro Devices (AMD)
Another one of the top stocks to buy on a dip is Advanced Micro Devices (NASDAQ:AMD), which was crushed over the last year. After starting 2022 at around $151.65, AMD now trades at $64.20. The stock’s steep decline was caused by the stock market’s weakness, inflation, fears of recession, price target cuts on the stock by analysts, and plunging PC demand. That’s the bad news. The good news is that the future looks far brighter for AMD.
It appears the worst-case scenario has been priced into the stock. Further, UBS upgraded AMD to a “buy” rating, with a price target of $95 a share. Investment bank Baird also just upgraded the beaten-down tech name to “outperform” with a price target of $100. The firm believes the company’s newest chips could increase its competitive advantage.
In addition, Morgan Stanley named AMD its “top pick” heading into 2023. It has an “overweight” rating on the stock, with a price target of $77.
Netflix (NFLX)
The shares of Netflix (NASDAQ:NFLX) were clobbered over the last year. After starting the year at about $610, it collapsed to less than $200.
The stock’s tumble came as COVID-19 lockdowns were terminated, enabling consumers to return to movie theatres and restaurants, and as the company began to post underwhelming subscriber numbers. Making things worse, in April Netflix reported that it had lost net subscribes for the first time in ten years and watched as $50 billion was wiped off its market cap.
Fortunately, that appears to have been the bottom for Netflix, as the company reported very strong Q3 results.
Not only did it add 2.4 million subscribers in Q3 (above its own guidance of 1 million), but it stated that it expected to add another 4.5 million net new subscribers during Q4.
NFLX also posted Q3 revenue of $7.93 billion and EPS of $3.10 a share, which came in ahead of the company’s previous forecast of $7.84 billion and $2.14 a share.
For Q4 Netflix sees revenue of $7.78 billion and earnings of 36 cents a share. Even more impressively, analysts are upgrading the stock again.
A former NFLX bear, CFRA analyst Kenneth Leon, gave NFLX a double-upgrade to a “buy” rating and increased his price target to $310. He likes the company’s new revenue streams from advertising, the lower price of its new ad-supported tier, and the increased control that it’s supporting over shared subscription accounts.
Now it’s also one of the top stocks to buy on the dip.
Datadog (DDOG)
Datadog (NASDAQ:DDOG) didn’t have a great year either. But I’d use its weakness as an opportunity to buy the stock, especially since DDOG is a leader in the $62 billion “observability” market.
After all, observability is essential. It provides companies with insight into their metrics, traces and logs. It can also help determine when an attack occurred, provide insight into what attackers did while inside the company and help firms improve their security in the future.
The company also continues to show signs of growth. In the third quarter, DDOG posted 61% year-over-year revenue growth, propelling its top line to $437 million. Even its net loss dropped to $14 million from $40 million during the same period a year earlier.
DDOG had a net retention rate of more than 130%, which is extremely high for a software company. Billionaires are buying the beaten-down stock, including Stanley Druckenmiller, who purchased 790,000 of its shares.
DDOG is trading at its lowest valuation in years and is another one of the strong stocks to buy on a dip.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is one of the most hated stock on the Street. Since January, the EV stock has dropped more than 50%.
Recently the shares have been plummeting on Elon Musk’s takeover of Twitter, which is leading to fears that he’s not paying as much attention to Tesla as in the past.
There are also concerns that Tesla’s growth is slowing , sparked by the company’s announcement of a temporary halt at its Chinese factory and the $7,500 discount it’s giving to U.S. consumers .
Despite all of the negativity, Tesla is still showing signs of life. In fact, its stock was up about 10% on Thursday after Elon Musk told reportedly staffers that, “Long-term, I believe very much that Tesla will be the most valuable stock on Earth.”
Perhaps, with Tesla, it’s time to take Baron Rothschild’s advice: “The time to buy is when there’s blood in the streets, even if the blood is your own.” Or even Sir John Templeton’s advice to buy when others are excessively pessimistic.
ARK Innovation ETF (ARKK)
We can even look at one of the worst-performing, most hated ETFs of 2022, the ARK Innovation ETF(NYSEARCA:ARKK). After starting the year around $97, the ETF now trades at $30.60, where it may be a buy.
That’s because the valuation of many of the fund’s holdings are becoming too cheap to ignore. With an expense ratio of 0.75%, the fund’s top, severely undervalued holdings include Tesla, Roku(NASDAQ:ROKU), Block (NYSE:SQ), Shopify (NYSE:SHOP), DraftKings (NASDAQ:DKNG), and even Nvidia.
While I’m not suggesting that you load up the truck with ARKK, it may be a good idea to take a small position in the name, given how undervalued many of its largest holdings have become.
Block Inc. (SQ)
Block also had a terrible year. Since January, it fell from about $160 to $61.20, where it appears to have bottomed out. More importantly, the company just posted solid earnings.
In its most recent quarter, SQ said its gross profits grew 38% year-over-year to $1.57 billion. The gross profit from its Cash App was up 51% YOY to $774 million. And the gross profit of its Square seller business climbed 29% to $783 million. Also, in Q3, its total net revenue climbed 17% to $4.52 billion.
Deutsche Bank analyst Bryan Keane is a fan of the stock now, too. “Even as market volatility and concerns surrounding macro headwinds have weighed on SQ’s shares, we remain positive on the company’s fundamental trajectory heading into FY23,” he wrote, according to TipRanks.com.
“In particular, we believe SQ will continue pulling levers to drive margin expansion as the company increases focus on reining in [its operating spending] while still investing for long-term growth.”
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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