Is it time to buy the 4 worst performing stocks in the S&P 500?

We are almost six months into 2022 and the stock market is still struggling to recover. The S&P500 The index is down nearly 14% year-to-date, and although it has rebounded from lows it hit just weeks ago, a waning economy threatens to drag down the index.

Inflation is at 40-year highs, gas prices are at record highs and rising, interest rates are climbing, the housing market is weakening and consumer confidence is plummeting due to fears of a recession.

Image source: Getty Images.

Yet even if the stock market plunges, investors should understand that corrections, crashes, and bear markets are all part of the investment cycle. Over time, they are always followed by bull markets that make previous declines look like little dots on the screen.

It’s often a great time to buy stocks during market corrections, as previously overpriced names are affordable again. The four worst-performing stocks in the S&P 500 are down 61% on average this year, but just because they’re cheaper than they weren’t makes them obvious buys. Let’s see if now is a good time to pick up these four old growth stocks.

Venmo cash app on smartphone.

Image source: PayPal.

PayPal (down 56.3% since the start of the year)

Payment processor PayPal (PYPL -2.03%) is struggling, to say the least, with shares down 67% in the past 12 months and 71% from their 52-week high. The reason for the sharp decline is that the easy money has disappeared. All those stimulus checks the government handed out last year that helped trigger the current cycle of inflation have since dried up and consumer spending is under control.

It seems that all but the deep discount retailers are suffering the same ill effects from the artificial spending boom generated by the stimulus checks. As the national mood deteriorates, consumers are pinching pennies. PayPal reported payment volume grew 13% last quarter, well below increases of 20% or more consistently reported for years, and it forecasts full-year revenue growth of just 11% to 13%.

It has leading peer-to-peer payment app Venmo, but bank-backed Zelle is growing faster and could eventually become the dominant player due to the platform trust banks provide, according to eMarketer.

Although PayPal has partnered with Amazon.co.uk (AMZN -2.52%) To allow Venmo to be used on the e-commerce giant’s site, the retail giant recently launched Buy with Prime which will allow Amazon Prime members to use their benefits on third-party websites.

Although PayPal shares are cheap compared to where they previously traded, they may not have fallen enough yet to warrant buying.

Person inserting a silicone dental aligner.

Image source: Getty Images.

Alignment Technology (down 59.7%)

While the general nervousness of consumers and the lack of financial resources harm Alignment Technology (ALGN -3.96%) similarly to PayPal, the dental aligner maker is a global company (half of its revenue comes from international markets), and it’s also feeling the impact of China’s zero-COVID policies.

China is Align’s second-largest market, and in a bid to contain new coronavirus outbreaks, cities like Beijing and Shanghai have been kept under draconian lockdown orders, with people not allowed to leave their home and no delivery – not even for food – allowed.

Still, officials are reporting an easing of restrictions, and while economic hardship may slow the adoption of clear aligners, Align estimates there is a target market of half a billion customers worldwide. It has less than 13 million today, which still gives it a wide avenue for growth.

However, President Biden has just warned that there is no end in sight yet to the rising food prices or record high gasoline prices we are facing, and Align’s products are a consumer discretionary product – a procedure that can easily be postponed until a time when money isn’t so tight. The sequential quarterly revenue decline recently announced by the dental maker may not be the last. It may be some time before Align Technology can resume its growth.

Person making with seashells.

Image source: Getty Images.

Etsy (down 63%)

Online store of handcrafted and vintage products Etsy (ETSY -7.23%) came into its own at the start of the pandemic when people were scrambling for masks of all kinds in an effort to ward off the coronavirus. Searches for masks on the site hit 9,000 per second at the time, according to CEO Josh Silverman, which caused the stock to triple in value.

While Etsy nearly doubled in value again last year, its shares have seen a rapid and steady decline in 2022 as concerns over increased offline shopping and the damaging effects of inflation on consumers prompted investors to rush.

Revenue grew over the past quarter, and Etsy’s marketplace sales were actually up 2% year over year. The growth came mainly from its recent acquisitions of Depop and Elo7, but since they are both unprofitable businesses, they are hurting bottom line and margins. Net profit fell 40% from a year ago. But the company is seeing good traction from the advertising business it started last year, which should be promising for the future.

While Etsy itself expects continued headwinds from macroeconomic and geopolitical events for at least the rest of the year, the online retailer could find itself in trouble for some time to come. A good case can be made that excellent long-term growth potential remains for Etsy, but there could be cheaper prices to come in the months and quarters ahead.

Women on the couch are watching TV.

Image source: Getty Images.

Netflix (down 68%)

The worst performing stock in the S&P 500 is the movie streamer netflix (NFLX -2.98%), which caught the market off guard when it reported a drop of 200,000 subscribers, its first drop since 2011. Considering it had forecast it would add up to 4 million subscribers, it was a huge blow. hard on the company – and the stock. Worse still, he thinks he will lose up to 2 million subscribers in the current quarter as well.

Netflix raised the prices of its subscription plan, which didn’t help when consumers were faced with rising costs everywhere – which was exacerbated by Netflix’s content problem, which meant that many people just don’t find much interest in watching on the platform.

While competing movie studio services have chosen to keep their movies to themselves, Netflix has had to rely more on original programming to fill the void, and its decision to go for quantity over quality has come to a head. turned out to be a mistake. It’s course-correcting now, ditching shows for niche audiences and leaning more towards content with mainstream appeal, but it may have damaged itself in the process.

Nielsen data, however, shows that Netflix is ​​still the leading service in terms of viewership hours, and with over 221 million subscribers worldwide, it remains the largest streaming channel. It’s still an essential service for entertainment, and after its stock was cut to the knees – it’s down more than 72% from recent highs – it should be a good long-term stock to buy for your portfolio. .