The market indexes have surged to new highs this year, but there are a handful of growth stocks with solid long-term prospects that offer excellent value to investors right now. A few of these stocks have fallen to new lows, which could be a once-in-a-decade opportunity to buy them at a discount.
To give you some ideas, let's see why three Motley Fool contributors believe now's a great time to scoop up shares of Nike(NYSE: NKE), Lululemon Athletica(NASDAQ: LULU), and Amazon(NASDAQ: AMZN).
A long-term winner at a deep discount
Jeremy Bowman (Nike): There's no question that Nike is struggling right now. The sneaker king has reported anemic growth in its last several quarters as it's losing market share to upstart rivals like On Holding, Deckers' Hoka and Lululemon, and it's struggled with weak consumer spending in North America and elsewhere. Its Major League Baseball jerseys have been roundly jeered, turning what seemed to be a big win for the brand into a loss, and its brand seems to be losing its luster.
As a result, Nike's revenue was flat in its recently ended fiscal year at $51.4 billion, and the stock is trading near a five-year low.
While Nike stock should be down on those results, the good news for investors is that all of those problems are fixable. Nike has always faced competition, and it has responded time and again. It has the street cred, marketing reach, and retail relationships to turn things around. It won't happen overnight, but there are several catalysts that could drive a turnaround.
First, Nike is taking steps to replenish its bench. It recently hired a new CIO, Cheryan Jacob, who previously worked at Microsoft and Flexport. Jacob will be tasked with modernizing the company's tech infrastructure.
In March, Nike hired a new VP of men's apparel as well, and it rehired a senior executive as VP of marketplace partners, showing it's giving more attention to the wholesale channel again.
Leaning on partners like Foot Locker should help boost growth once again, and those wholesale relationships are a source of competitive advantage for the company as it takes time to build those. Finally, the Summer Olympics could also give the company a chance to revitalize its brand in front of billions of TV viewers, a unique opportunity in sports.
There aren't any guarantees in investing, but Nike has survived enough challenges to give investors confidence that it can bounce back from the latest setback as well.
A top stock at a price you don't want to miss
Jennifer Saibil (Lululemon Athletica): Lululemon has carved out a niche in athletic wear and is challenging the traditional leaders. It has become synonymous with premium gym clothes and spawned a wave of yoga-inspired brands that are following in its footsteps. But while growth has slowed -- for now -- it would be a mistake to assume that Lululemon is past its prime. It's well in the thick of it, and there are plenty of growth opportunities for Lululemon and its stock.
The company is still reporting double-digit sales growth despite the inflationary environment and ongoing troubles at other brands, like Nike. Plus, profitability is improving even under these adverse conditions. Gross margin expanded by 0.2 points in the 2024 fiscal first quarter (ended April 28), and earnings per share (EPS) was up from $2.29 last year to $2.54 this year.
Still, the market wasn't thrilled with management's guidance for second-quarter sales growth to be similar and full-year growth to be about 12%. Lululemon also raised full-year EPS guidance from $14.10 to $14.37.
The company is on schedule to meet its Power of Three x 2 growth strategy goals, which are to double 2021 sales by 2026 by doubling men's and digital sales and quadrupling international sales. These are where it sees the greatest opportunities right now. Its women segment is its core business, and it's launching plenty of innovative products there, too, but it's the non-seasonal favorites in Lululemon's patented fabrics that drive so much of its sales.
Lululemon stock tanked after Nike's recent uninspiring earnings report, where management updated investors that it expects sales to drop in fiscal 2025. Investors are worried that Lululemon may meet the same fate and revise its own ongoing guidance, and Lululemon stock is down 47% year to date. At this price, it trades at a P/E ratio of 22, almost as cheap as Nike stock, and its cheapest valuation in five years.
Lululemon operates an efficient, growing, and profitable business, and it has robust long-term opportunities. It looks like an incredible deal right now.
Amazon is investing in profitable, high-growth opportunities
John Ballard (Amazon): Unlike Nike and Lululemon, Amazon stock has continued to perform well in 2024, but the company's efforts to squeeze more cash flow and profits out of sales could yield more upside.
Amazon will report second-quarter financial results on Aug. 1, but it should be another solid report. In the first quarter, net sales increased 13% year over year, driven by double-digit growth in non-retail areas like advertising and cloud computing services (e.g., Amazon Web Services).
The company achieved record trailing free cash flow of $45 billion through the first quarter. Free cash flow is a closely watched metric that measures the actual amount of cash the business generates from operations after all costs. Amazon's free cash flow may decline in the near term as management increases capital expenditures to drive growth in Amazon Web Services (AWS), particularly artificial intelligence (AI) initiatives. But AWS is a very profitable revenue source, so further investment in this business will reward shareholders down the road.
Another very profitable growth opportunity for Amazon is advertising. Sponsored product listings and streaming TV ads are high-margin sales opportunities that can also fuel increases in free cash flow. Amazon generated $49 billion in ad revenue over the last year, and with ad revenue (excluding currency changes) up 24% year over year in Q1, it was Amazon's fastest-growing business.
Amazon shares continue to trade within their historical average range using various valuation metrics, such as price-to-sales ratio, price-to-earnings, or price-to-free cash flow. This means the stock should continue to climb in value over the next several years along with the growth of the business.
Should you invest $1,000 in Nike right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has positions in Amazon and Nike. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Lululemon Athletica, Microsoft, and Nike. The Motley Fool recommends Foot Locker and On Holding and recommends the following options: long January 2025 $47.50 calls on Nike, long January 2026 $395 calls on Microsoft, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
