Albert Einstein once said the power of compounding is the eighth wonder of the world. For instance, you can turn a $50,000 investment into $500,000 over 20 years if you generate returns of 12.2% each year.
The bull run in the past decade enabled the S&P 500 to deliver annual returns of 15.5% between March 2009 and March 2020. While index investing is a good strategy to beat long-term inflation rates, you can also derive outsized gains by gaining exposure to quality stocks.
Since the start of 2022, rising interest rates and inflation have driven the valuations of companies across sectors significantly lower, allowing you to gain exposure to undervalued gems trading at a discount. Here, we’ll look at three such beaten-down stocks that are bargain buys for those with a long investment horizon.
Snowflake stock
One of the fastest-growing tech stocks in the world, Snowflake (NYSE: SNOW) enables enterprises to easily integrate data sets and execute analytic workloads, providing a robust experience across public clouds.
Snowflake ended fiscal 2023 with remaining performance obligations of over US$3.6 billion and more than 7,800 customers. Around 330 customers have spent more than US$1 million on the Snowflake platform in the last four quarters. Its dollar-based net retention rate stood at 158%, which indicates existing customers increased spending by 58% in fiscal 2023.
Snowflake forecast its total addressable market to touch US$248 billion by 2026, providing the company with enough room to accelerate top-line growth, given its revenue stood at US$2.07 billion in fiscal 2023.
Toronto-Dominion Bank stock
A Canadian giant, Toronto-Dominion Bank (TSX: TD) is wrestling with multiple macro headwinds right now. The collapse of several banks south of the border in recent days and a sluggish lending environment has driven shares of TD Bank lower by 25% from all-time highs, allowing you to benefit from a tasty dividend yield of 4.5% today.
Moreover, TD Bank is armed with a strong balance sheet and has the second-best tier-one capital ratio in North America. This ratio measures how well a bank is capitalized to handle an economic downturn.
Priced at 10 times forward earnings, TD Bank stock is also trading at a discount of 25% compared to consensus price target estimates.
Docebo stock
The final stock on my list is Docebo (TSX: DCBO), an enterprise-facing e-learning company. Valued at a market cap of $1.6 billion, Docebo stock is down 60% from all-time highs.
Docebo transitioned towards a subscription-based business model, allowing it to generate consistent revenue across market cycles. Additionally, the global shift towards the work-from-home trend is bound to increase demand for Docebo’s portfolio of learning products and solutions in the next decade.
In the last seven years, Docebo has increased its average contract values by 300%, which suggests it has successfully raised customer spending on its platform. It has also allowed Docebo to increase sales from US$41.4 million in 2019 to US$133.7 million in the last 12 months.
The Canadian company continues to reinvest in growth, thereby sacrificing the bottom line. While DCBO stock is priced at 250 times forward earnings, its widening base of customers, revenue expansion rates, and higher customer spending make it a top bet right now.
