The brutal sell-off in the stock market continued for much of this past week. All three major stock market indexes officially entered correction territory, declining 10% for their most recent high. This sell-off has taken a bite out of my portfolio's value.
However, one of the benefits of market corrections is that they provide the opportunity to buy stocks at more attractive prices. That's exactly what I did this week, buying more shares of seven companies: Airbnb (NASDAQ:ABNB), Roku (NASDAQ:ROKU), Spotify Technologies (NYSE:SPOT), Cousins Properties (NYSE:CUZ), SL Green Realty (NYSE:SLG), EPR Properties (NYSE:EPR), and Lennar (NYSE:LEN.B). Here's why I think these stocks will be winners over the long term.
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Disruptive tech on sale
Tech stocks have taken a beating over the past few months. The sector had been blistering hot since the market started rebounding from the initial pandemic shock in 2020 on the view that it would accelerate the adoption of technology. However, that rally has ended abruptly as interest rate and inflation fears gripped the market.
Shares of some of the top disruptive consumer-facing tech brands have taken a beating, with Airbnb, Spotify, and Roku down 25% to 60% from their highs. While they still could have further to fall, I think they have enormous long-term upside potential, making it worth the risk.
Airbnb estimates the short-term rental market alone is a $1.8 trillion opportunity. Add in long-term rentals and the sale of experiences, and it sees a total opportunity approaching $3.4 trillion. That leaves a lot of growth ahead for the vacation rental platform, which recorded $11.9 billion of gross booking value in the third quarter.
Roku also has enormous growth still ahead. More than half of U.S. households still get their TV from cable and satellite, suggesting there's a lot of cord cutting to go. Add that to the streaming platform's international expansion potential and its opportunities to continue monetizing its content distribution and advertising platforms, and Roku has lots of room to run.
Spotify is in that same category. While it's the industry leader in audio streaming, it still has lots of growth potential. More than half of its current 381 million monthly active users are on its ad-supported offering, which contributes 85% less revenue than its premium subscribers. Add in the enormous overall market opportunity for audio streaming, especially as it expands into podcasts, and Spotify is only scratching the surface of its potential.
Adding to the real estate recovery trade
Tech stocks aren't the only ones taking a tumble in recent weeks. Several real estate stocks have also slumped, weighed down by the ongoing pandemic, rising interest rates, and supply chain concerns.
Some of the hardest hit have been real estate investment trusts (REITs), especially those still battling pandemic-related headwinds like office REITs and those that own consumer-facing properties like experiential real estate. While the recovery hasn't been as smooth as hoped, market conditions are improving. That's why I took advantage of the recent decline to buy more shares in several REITs that I believe will benefit as we learn to live with the virus.
Manhattan's largest office landlord, SL Green, has tumbled 20% from its high -- putting it 31% below its pre-pandemic level -- even though companies are firming up their return to the office plan. The Office REIT noted that leasing activity accelerated in the fourth quarter as New York City continued recovering. Meanwhile, the Sun Belt-focused Cousins Properties has declined by 10% from its recent high -- putting it down more than 10% since before the pandemic started -- even though office demand across the South has benefited from the pandemic as more companies relocate and expand in business friendly states.
EPR Properties, which focuses on owning movie theaters and other attractions, has also fallen more than 20% from its recent high, putting it 40% below its pre-pandemic level. That decline comes even through the box office is making a comeback and people are enjoying more experiences out of the home. The steady improvement in demand has helped boost the REIT's rental collection rate, enabling it to reinstate its monthly dividend. It also has an improved balance sheet to purchase additional experiential real estate to further benefit from the recovery.
Finally, I bought a few more shares of leading homebuilder Lennar, which has tumbled almost 20% from its recent high. While the homebuilder is facing some headwinds from higher interest rates, labor shortages, and supply chain issues, demand for homes remains strong. Economists estimate that the housing market is short between 4 million and 7 million homes because the industry has cut back on building since the financial crisis. That suggests Lennar has plenty of growth still ahead.
Focusing on the long-term view
The past few months have been tough for investors, with stocks seemingly in an endless downward spiral. However, instead of fixating on these near-term headwinds, I'm staying focused on the long-term picture. That's allowing me to take advantage of the sell-off to buy shares of several companies with brighter futures at a lower price. While I'm probably not buying at the bottom, I believe most of these investments will pay off over the longer term.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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January 29, 2022 at 10:38PM
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7 Stocks I Bought During This Week's Stock Market Correction - Motley Fool
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