Are you a contrarian investor? Sometimes it seems everyone claims to be one, but it isn’t easy, especially after a wipeout such as the one we saw on Sept. 13.
An investor who wishes to pay bargain prices to enjoy larger gains down the line needs the courage to jump in when other people are in panic mode.
Below is a list of companies in, or associated with, an industry that has taken it on the chin this year: online advertising.
Most of the companies in this group are expected to grow their revenues at a much faster pace than the broader market over the next two years.
Back to basics with Warren Buffett
Before looking at the online advertisers, it is a good idea to review the following, even if you believe you have heard it all before.
You have probably seen bits and pieces of the following from Berkshire Hathaway CEO Warren Buffett from his letter to shareholders summing up the conglomerate’s results in 1986. Here’s a longer version of it:
Common stocks, of course, are the most fun. When conditions are right, that is, when companies with good economics and good management sell well below intrinsic business value — stocks sometimes provide grand-slam home runs.
Buffett then writes that Berkshire cannot predict stock-market performance.
What we do know, however, is that occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
I bolded that last sentence. It is easy to suggest that people looking to bag outsized gains go against the grain when the market gives them the opportunity. It is far more difficult to have enough faith and patience to put the idea into practice.
As part of your own investment research, you should read Buffett’s most recent letter to shareholders. All of his letters can help you. They are listed here.
The beaten-down online-advertising group
This idea resulted from a Twitter posting by Eric Jhonsa:
Jhonsa mentioned the semiconductor industry, whose stocks have been slammed this year as chip makers enter a downcycle, in the wake of pandemic-era shortages. Several of the largest manufacturers in the industry have had large recent cuts to their 12-month rolling consensus estimates for sales and earnings. Others have bucked the trend.
Jhonsa supplied a list of 21 stocks of online advertisers or companies that provide supporting software or services. These stocks have been hammered this year. For some, forward price-to-earnings ratios are now relatively low when considering how rapidly these companies are expected to grow. Analysts expect great things for the three stocks Jhonsa mentioned by ticker, as you can see below.
To look further ahead, here’s Jhonsa’s list, with consensus sales estimates for calendar 2022, 2023 and 2024 among analysts polled by FactSet. The 2024 sales estimates are available for all but two companies. The group is ranked by how much sales are expected to grow during 2023, based on the estimates:
|Company||Ticker||Expected sales growth – 2023||Two-year estimated sales CAGR through 2024||Estimated sales – 2022 ($mil.)||Estimated sales – 2023 ($mil.)||Estimated sales – 2024 ($mil.)||Market cap. ($mil.)|
|Tremor International Ltd. ADR||TRMR||28.7%||N/A||$303||$390||N/A||$562|
|ironSource Ltd Class A||IS||25.3%||23.4%||$766||$960||$1,165||$2,716|
|Trade Desk Inc. Class A||TTD||24.9%||26.0%||$1,592||$1,989||$2,526||$28,351|
|Doximity Inc. Class A||DOCS||24.7%||27.1%||$408||$509||$659||$3,653|
|DoubleVerify Holdings Inc.||DV||24.6%||24.1%||$449||$560||$692||$4,709|
|AppLovin Corp. Class A||APP||20.2%||17.8%||$2,975||$3,575||$4,131||$7,789|
|PubMatic Inc. Class A||PUBM||19.0%||21.2%||$279||$332||$410||$766|
|Zeta Global Holdings Corp. Class A||ZETA||18.4%||20.2%||$563||$667||$815||$1,321|
|Integral Ad Science Holding Corp.||IAS||17.3%||19.8%||$400||$470||$575||$1,265|
|Roku Inc. Class A||ROKU||17.3%||21.6%||$3,139||$3,682||$4,642||$8,216|
|Perion Network Ltd.||PERI||16.2%||12.3%||$629||$731||$794||$966|
|Snap Inc. Class A||SNAP||15.9%||18.6%||$4,635||$5,374||$6,523||$16,416|
|Digital Turbine Inc.||APPS||15.3%||23.1%||$767||$884||$1,163||$1,791|
|Pinterest Inc. Class A||PINS||15.2%||17.7%||$2,799||$3,224||$3,877||$14,333|
|Criteo SA ADR||CRTO||13.8%||10.3%||$973||$1,108||$1,184||$1,716|
|Alphabet Inc. Class A||GOOGL||11.6%||11.9%||$289,552||$323,097||$362,324||$625,503|
|Meta Platforms Inc. Class A||META||10.2%||11.9%||$117,850||$129,837||$147,512||$349,239|
Click on the tickers for more about each company, including corporate profiles, news, financials and stock performance. Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on MarketWatch quote pages
We used calendar-year estimates for a uniform set of numbers, as many companies’ fiscal years don’t match the calendar.
For companies for which consensus sales estimates are available through 2024, the table includes expected two-year compound annual growth rates (CAGR).
In comparison, companies in the S&P 500 SPX as a group are expected to increase sales by a weighted 4.2% in 2023, with a two-year sales CAGR of 4.5% through 2024.
There is quite a range of companies on the list, by size. On the low end, Inuvo Inc. INUV has a market capitalization of only $58 million and is a penny stock, having fallen to 48 cents a share on Sept. 13 from 53 cents at the end of 2021. Among analysts polled by FactSet, only two cover this stock. All others on the list are covered by at least five analysts.
Here’s the list again, this time with forward price-to-earnings ratios based on consensus 12-month earnings estimates and ratings summary, sorted by the 12-month upside potential implied by the price targets:
|Company||Ticker||Forward P/E||Share “buy” ratings||Share neutral ratings||Share “sell” ratings||Price – Sept. 13||Cons. price target||Implied 12-month upside potential|
|Tremor International Ltd. ADR||TRMR||5.4||100%||0%||0%||$7.75||$20.30||162%|
|AppLovin Corp. Class A||APP||35.8||94%||0%||6%||$26.68||$52.13||95%|
|Digital Turbine Inc.||APPS||11.4||100%||0%||0%||$18.12||$35.18||94%|
|Integral Ad Science Holding Corp.||IAS||34.2||88%||12%||0%||$8.12||$14.25||75%|
|Zeta Global Holdings Corp. Class A||ZETA||27.6||80%||20%||0%||$7.71||$12.06||56%|
|PubMatic Inc. Class A||PUBM||20.6||70%||30%||0%||$17.96||$27.28||52%|
|Perion Network Ltd.||PERI||11.0||100%||0%||0%||$21.75||$31.67||46%|
|Meta Platforms Inc. Class A||META||14.3||72%||26%||2%||$153.13||$216.67||41%|
|Criteo SA ADR||CRTO||9.3||69%||31%||0%||$28.31||$39.58||40%|
|Alphabet Inc. Class A||GOOGL||18.0||94%||6%||0%||$104.32||$141.79||36%|
|Doximity Inc. Class A||DOCS||44.4||79%||14%||7%||$33.07||$41.92||27%|
|ironSource Ltd Class A||IS||22.3||46%||54%||0%||$3.92||$4.92||25%|
|Trade Desk Inc. Class A||TTD||57.5||73%||27%||0%||$63.85||$79.59||25%|
|Snap Inc. Class A||SNAP||N/A||29%||64%||7%||$11.77||$14.21||21%|
|Roku Inc. Class A||ROKU||N/A||52%||29%||19%||$68.05||$81.00||19%|
|DoubleVerify Holdings Inc.||DV||47.3||79%||21%||0%||$28.71||$32.58||13%|
|Pinterest Inc. Class A||PINS||36.7||30%||67%||3%||$24.59||$25.22||3%|
Price-to-earnings ratios are marked “N/A” for the companies that aren’t expected to show profits for the current 12-month period.
As with any list of stocks, the point here is to highlight a group of companies that may be worth a deeper look as you consider how to invest your money. You should do your own research to form your own opinion about any investment. For an individual company, consider how likely it is to remain successful and competitive for the next decade at least.
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