The stock market is off to an encouraging start early in 2023, with the S&P 500 currently up roughly 4% year to date. But the index remains down roughly 15% from its peak, and there are some fantastic companies out there whose stocks are still well below their highs. With that in mind, read on to see why Motley Fool contributors identified these two stocks as worthwhile buys for investors looking to capitalize on the potential for even stronger recoveries on the horizon.
Airbnb is thriving and still has huge room for growth
Keith Noonan: With over 1.4 billion guest stays already booked through the platform, it's clear people love Airbnb's (ABNB -1.43%) service, and the company's name has basically become shorthand for the overall short-term rental category. Just as the business offers hosts and guests a high degree of flexibility, the company has also shown that it can quickly adapt to challenges and meet market demands.
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Facing pandemic-related problems, Airbnb scaled back its sales and marketing spending and cut other expenses, and it's emerged from these conditions as a leaner, more efficient company. Airbnb bounced back at an impressive clip as travel restrictions and social-distancing mandates eased in most parts of the world, and its core rental business has an incredibly promising long-term expansion outlook. What's more, the company is evolving beyond the traditional conception of hospitality and rental services with its experiences platform that can be used to book reservations for local events.
Plus, Airbnb appears to be firing on all cylinders. The company's fourth-quarter earnings results arrived with sales that came in ahead of the market's targets and profits that absolutely crushed the average analyst estimate. Revenue grew roughly 24% year over year to come in at $1.9 billion, and net income surged 480% to reach $319 million. The company closed out the year with $3.4 billion in free cash flow, up 49% year over year, and it's still valued at a reasonable-looking 24 times trailing free cash flow even after a recent rally for the stock.
With its share price still down roughly 39% from its high, I think Airbnb stands out as a great buy at today's prices.
Airbnb has huge room for growth as it attracts more hosts, guests, and experience seekers to its platform. The online rental specialist looks poised for a big winning streak. This is one of my favorite stocks and largest portfolio positions, and I think that it stands a very good chance of delivering market-crushing returns for long-term investors.
Walt Disney is down but not out
Parkev Tatevosian: Down 48% off its high in early 2021, we might be nearing the point where investors will no longer have the option of buying Walt Disney (DIS -0.89%) stock at a bargain valuation. The pandemic devastated the media and entertainment giant. It relies on bringing large groups of people together in person for a large part of its revenue. Of course, an outbreak of a deadly virus is bad news for that kind of business.
That said, Disney is recovering quickly. Overall revenue in its 2022 fiscal year (ended Oct. 1, 2022) of $82.7 billion was significantly higher than its pre-pandemic total of $69.6 billion in fiscal 2019. Admittedly, operating income of $6.8 billion in fiscal 2022 was lower than $11.8 billion in 2019. Growing its streaming segment to rival Netflix has proven expensive. But its theme parks, cruise ships, hotels, and resorts are almost back to full capacity and are already more profitable than ever.
This is all while the world has yet to fully recover from the pandemic. Global spending on hotels and resorts -- which Disney counts on because its theme parks are prime destinations -- is forecast to reach $1.2 trillion in 2023. If that estimate turns out to be true, it would be nearly $300 billion below what people spent in 2019. As that figure rebounds to exceed pre-pandemic levels, the House of Mouse is likely to be a prime beneficiary. Investors may want to scoop up shares of Disney before that happens.
Take advantage of the pullback in these stocks
Airbnb and Disney are great companies that are capable of weathering tough times. While conditions for the stock market and broader economy are difficult to predict in the near term, it's very likely that both of these businesses will still be category leaders a decade from now. On the heels of valuation turbulence over the past year, long-term investors have an opportunity to build positions in these great stocks at prices that leave room for fantastic returns.
