3 S&P 500 Laggards To Buy On the Dip

Thanks to positive earnings reports from the likes of Microsoft and others, the S&P 500 is showing signs of life this week. However, with the index still down considerably to start the year many large caps remain at depressed levels.

Investors looking to buy the dip should consider companies that have been hit hardest but still have solid long-term growth prospects. It is here that valuations have become more reasonable and entry points more attractive.

The S&P sale’s premium rack includes a gush of energy names that have already advanced 20% or more in 2022. Over in the bargain bin, a mix of consumer and health care companies have seen the same magnitude move only to the downside. These are three of the best ‘buy the dip’ opportunities to bring to the cash register.

Is it a Good Time to Buy Netflix Stock?

Down 37% already this year, Netflix (NASDAQ:NFLX) is neck and neck with Moderna for the dubious distinction of the S&P 500’s caboose. This is an unfamiliar script for a streaming media leader which has seen its stock advance every year since 2015.

Netflix’s recent woes have been well publicized. The company’s January 20^th update included a year-over-year slowdown in subscriber additions (8.28 million versus 8.51 million) and a soft forecast for the key metric in the current quarter. While disappointing, the market’s reaction deserves an Oscar nomination in high drama category.

Management noted that there was a probably “Covid overhang” in Q4 stemming from the fact demand was pulled forward in the second half of 2020 at the expense of 2021 comparisons. The likely rationale for the weak Q1 guidance of 2.5 million subscriber adds—a back end loaded content release schedule—is a bit harder to accept but plausible.

More importantly, investors want to to know if the intensifying competition in streaming TV is finally catching up to Netflix. Given the presence of formidable foes like Amazon Prime and Disney+, there is undoubtedly some impact there. But let’s not forget Netflix has amassed 222 million global subscribers and yet it has just scratched the surface in many overseas markets. With the North American streaming market becoming saturated, expect Netflix’s worldwide brand recognition to make it a winner in the international streaming wars. This isn’t the first time Netflix stock has sold off on weak subscriber data. Spoiler alert: the conclusion to the latest saga will be a happy ending marked by a closing of the latest gap down.

Why is Intuitive Surgical Stock Down?

After climbing more than 30% in each of the last two years, Intuitive Surgical (NASDAQ: ISRG) stock is having a 25% off winter sale. On top of the recent attack on high multiple companies, the robotic surgery innovator offered a tepid first quarter outlook last week that contributed to its January slide.

On the bright side, fourth-quarter earnings per share (EPS) were up 9% year-over-year and came in slightly ahead of expectations. The market, however, chose to focus on management’s cautious outlook for near-term procedure volumes related to the surge in Omicron cases. This will likely weigh on the current quarter’s results, but eventually, underlying demand will shine through in future quarters as deferred procedures are rescheduled.

Robotic-assisted surgery has been around for a while now but is still in the early stages of its growth trajectory. Procedures that employ Intuitive Surgical’s da Vinci system are known to have better outcomes and quicker recovery times, i.e., reduced hospital stays. So, while they are expensive, the implied cost savings and declining price points are making robotic surgery tools a better investment for practitioners.

General market weakness and a classic case of nearsightedness has shaved approximately $100 of Intuitive Surgical’ s post-split high of $370. The P/E multiple has come down into the 50’s which appears high but given the long-term growth runway, is a more reasonable if not inexpensive price to pay. Back half-loaded results should make this stock a 2022 comeback story.

Is Bath & Body Works a Good Value Play?

Bath & Body Works (NYSE:BBWI) has been among the hardest hit consumer names simply because the stock has done so well of late. Shares of the beauty and personal care products retailer are down 20% to start the year after more than doubling in each of the last two years.

Given the stunning run off the March 2020 bottom, the current dip was overdue, so this is a good thing. The former L Brands (and the result of the Victoria Secret’s spinoff) is thriving on its own. Healthy global demand for things like soaps, perfumes, and candles during the pandemic recovery and a successful omni-channel sales model drove a convincing earnings beat in Q3.

Earlier this month management provided updated guidance for the all-important holiday quarter. It said EPS will be at the high end of its previous guidance of $2.10 to $2.25. The upper end of the range implies 15% growth, so this was positive news. But amid bearish market sentiment, it fell on deaf ears. If the market is in a better mood come February 23^rd when Q4 results are formally announced, the stock price should start to reflect the profits that are being generated.

Based on analysts’ expectation of Bath & Body Works’ 2022 EPS, the stock is trading around 12x forward earnings. Investors that got in when the stock hit $80 are taking a bath, but those that jump in ahead of next month’s earnings could clean up.