To The Moon

Year to date, the S&P 500 has fallen by more than 11% as stock traders weigh multiple concerns, including potential slowing economies in the U.S. and elsewhere, elevated gas prices, and rising interest rates needed to tame elevated inflation. The down market is creating opportunities in some sectors as good companies are being dragged down along with stocks that deserve to be trading lower.

That's the case with three companies we will discuss in this article which have seen their stock prices drop by 9% to 25% since the start of 2022. Let's take a closer look at these stocks to understand why now might just be an opportune time to buy.

Image source: Getty Images.

1. Apple

Apple is one of the companies caught up in the broader tech stock sell off, with its stock down by almost 10% so far this year. The stock has also been affected by reports of supply chain issues, but this should prove temporary. After all, people still clamor for Apple's products.

In its fiscal 2022 first quarter (ended Dec. 25, 2021), revenue grew by 11.2% to $123.9 billion. Due to chip shortages and manufacturing issues, this growth rate was lower than in previous quarters, including 28.8% year-over-year growth reported in the previous quarter. Although it's troubling to lose sales, these issues have nothing to do with slowing demand. In fact, demand was so strong that Apple couldn't meet it.

Meanwhile, Apple regularly updates its iPhone, coming out with a version 13 lineup last year, and consumers rushed out to buy it. In its latest fiscal year, which ended on Sept. 25, 2021, iPhone sales rose by 39.3% to $192 billion. And Apple has an exciting future with new products, including a potentially self-driving car, coming down the pike. We will find out more about its performance when Apple reports Q2 earnings on Thursday, April 28.

2. Amazon

Amazon's share price has dropped by 13.7% so far in 2022. While there have been concerns raised about its near-term retail performance, it will undoubtedly rebound as the company continues to focus on value and fast delivery.

In 2021, sales rose by 21.7% to $469.8 billion. But growth slowed later in the year, with a top-line increase of 9.4% in the fourth quarter. Management expects 4.5% to 9.5% sales growth in the first quarter, excluding foreign exchange translations. It anticipates operating income, not counting an accounting change, to fall by 38% to $5.5 billion at the midpoint of management's guidance.

Like other retailers, Amazon continues to confront supply chain issues and higher costs. These issues should prove to be temporary. Management has also offset some of the elevated expenses by raising the price of its very popular Prime subscription. Subscribers will be asked this year to start paying $139 a year, a $20 boost in the annual cost. The higher price will help to offset the cost of added content Amazon gained with its acquisition of MGM Studios.

Amazon has become far more than an online marketplace. Its Amazon Web Services (AWS) has a dominant 32% share of the cloud-computing market. As companies clamor for data, this has become a fast-growing, high-margin business. Last year, AWS' sales grew by 37.1% to $62.2 billion, driving operating income 37% higher to $18.5 billion. Its 29.8% margin dwarfs the North American and international divisions' typical single-digit operating margin.

Aside from AWS, Amazon also generates an impressive amount of sales from advertising. In the fourth quarter, ad revenue grew by 33% year over year to $9.7 billion.

Amazon will report fiscal 2022 first-quarter earnings on April 28.

3. Lowe's

Lowe's stock is off to a rough start in 2022, down nearly 24%. Investors appear to be concerned that the red-hot housing market could cool as interest rates increase, which could affect Lowe's sales. But long-term investors should view this as an opportunity.

In fiscal 2021 (which ended Jan. 28), same-store sales (comps) increased by 6.9%, and operating margin expanded by 1.8 percentage points to 12.6%. For Fiscal 2022, management said it expects flattish comps, although it anticipates operating margin to expand to the 12.8% to 13% range.

That's not too disappointing considering fiscal 2021 was a banner year. But demand doesn't fall off a cliff just because the housing market slows down, and Lowe's results will undoubtedly rebound when the cycle turns. For instance, during the Great Recession that ran from 2007 to 2009, comps fell by between 5% and 7%. However, the following year, sales rebounded with comps increasing by 1.3%. Lowe's will next report earnings on May 17.

Meanwhile, Lowe's investors can collect the reliable and ever-increasing dividends the company generates, even if results temporarily falter. Lowe's is a Dividend King, raising annual dividend payments for 59 straight years. That includes some tough economic periods. It seems like a good bet that the board of directors will see fit to increase dividends again this year. Lowe's stock has a 1.6% dividend yield.

Investor takeaway

While blindly buying certain stocks merely because they're down isn't a wise strategy, the stock for Apple, Amazon, and Lowe's each offer compelling long-term prospects. Their issues will prove a temporary bump in the road, making their recent price drops a good buying opportunity.