3 growth stocks down 53% to 83% to buy now, Wall Street says

The bears have a firm grip on the tech sector in 2022, and that grip tightened this week as the US Federal Reserve moved to more aggressive than expected interest rate policy. The Nasdaq-100 The index, which is the main barometer of tech industry performance, has so far fallen more than 29% in 2022.

But in some cases, it offers investors the opportunity to acquire a stake in innovative companies at a discount. Sharp declines in value haven’t stopped Wall Street from recommending Snowflake (SNOW 0.20%), Semrush Fund (SEMR -0.73%)Where Twilio (TWLO -2.35%)so here’s why now could be a great opportunity to hold long-term positions in all of them.

The cloud stock backed by Buffett’s Berkshire

Anthony Di Pizio (Snowflake): Snowflake is an innovative cloud company that has attracted partnerships with trillion-dollar tech giants like Amazon, Microsoftand the parent company of Google Alphabet. But he also won the approval of the investment company Berkshire Hathaway, which is led by legendary long-term investor Warren Buffett. The company’s stake in Snowflake is worth around $1.1 billion at the time of this writing.

There’s probably no better list of names a company could be associated with, so why all the fuss? Well, it starts with the Snowflake Data Cloud. As companies continue to migrate their business operations online using cloud computing technology, they often find themselves using multiple vendors to meet all of their needs, such as the aforementioned tech giants. This creates challenges because extracting the maximum value from the data often requires clear visibility across the entire picture; it is much more difficult to draw conclusions from fragmented information stored in several different locations.

Snowflake’s Data Cloud helps aggregate this information, and this is the main feature that attracts vendors to Snowflake. Customers appreciate the ability to exchange data with affiliates even if they are using a different cloud platform, which the Snowflake Data Cloud enables. But in addition, being inside the Snowflake ecosystem gives customers access to a marketplace where they can further monetize their data or access more other sources.

As the rest of the US economy slows, Snowflake’s growth is soaring. The share of its customer base spending $1 million or more annually with the company doubled year-over-year to 246 in the recent second quarter of fiscal 2023 (ended July 31). This helped push Snowflake’s revenue to an 83% growth rate, reaching $497 million for the quarter and, in a clear sign of confidence, the company added nearly 1,000 new employees this fiscal year as that much of the tech sector is downsizing.

Snowflake stock is currently down 56% from its all-time high, and Berkshire Hathaway isn’t the only bullish company. Wall Street Investment Bank Morgan Stanley bets the stock could climb 53% by $274. It would be a great comeback in this difficult environment.

This Unknown Growth Stock Has Huge Upside Potential

Jamie Louko (Semrush): Most investors may not be familiar with Semrush, but they should be. According to Needham analyst Scott Berg, this unknown growth stock has nearly 80% upside potential from its current prices.

Semrush specializes in marketing technology tools, helping businesses reach their target audience through marketing. However, it is not an advertising medium. Semrush provides tools for product marketing feeds such as social media marketing, search engine optimization, and content marketing. It’s the top dog in this space, according to G2, with 91,000 paying customers.

With over 50 tools covering dozens of marketing categories, Semrush provides almost everything a marketing team could need. Conversely, its competitors tend to specialize in only one or two categories. This gives Semrush the advantage of being one of the only companies to provide a full suite at scale. It is also extremely difficult for customers to leave Semrush once onboarded.

This proved true in the second quarter, when the company experienced continued growth, despite challenging macro factors. Revenue jumped 39% year-over-year to $63 million in the second quarter, and the company was quickly embraced by large customers. Those who spend more than $10,000 per year are up 80% over the prior year period in the second quarter. This shows how robust the demand for Semrush and its tools is, even during tough economic times.

To maintain this lead, Semrush has invested in itself, especially its people. The company spent a lot of money moving its Russian employees, who made up more than 60% of its total workforce, out of the country permanently. Semrush has done this successfully: almost all of its employees are now outside the country. Having its employees outside of this environment means it now has talent in politically stable countries, which potentially allows them to work more efficiently and innovate. However, this has hurt profitability: Semrush expects its non-GAAP net loss (adjusted) to reach $30 million for the full year, much worse than its non-GAAP loss of $500,000. in 2021.

Semrush is seeing the fruits of its labor with steady growth during the precarious period. With its investments in the future, its high adoption rates and its solid leadership position, the company has a bright future ahead of it. Additionally, with the stock down 47% year-to-date, now seems like a good time to grab a slice of Semrush.

A leader in cloud communications

Trevor Jennewine (Twilio): Twilio stock has fallen 83% from its peak, and the shares are currently trading at 3.8 times the sell, a steep discount from the five-year average of 16.2 times the sell. To that end, 71% of Wall Street analysts who follow Twilio recommend buying the stock now, according to The Wall Street Journal.

Twilio’s mission is to power the future of communications. Its cloud platform includes a suite of application programming interfaces, or APIs (i.e. code that allows different applications to interact). These APIs allow developers to easily build software with features such as text, voice, and video. Twilio also provides a number of pre-built software products, including a contact center platform (Twilio Flex) and a customer data platform (Twilio segment). Together, these tools help brands engage consumers with personalized communications across virtually any digital channel.

Twilio has transformed its pioneer status into market leadership. Last year, IDC once again recognized it as the best Cloud Communication Platform-as-a-Service (CPaaS) provider. The report specifically noted its “wide portfolio, reliability and reputation for quality” as its main strengths. Twilio also received similar recognition in a recent G2 Grid report, which indicates that it has achieved greater market presence than any of its peers.

Unsurprisingly, Twilio is growing at a steady rate. Its number of customers grew by 15% to 275,000 over the past year, and the average customer spent 23% more. In turn, revenue soared 51% to $3.4 billion. On a less optimistic note, the company has burned through $254 million in cash over the past 12 months, but management says it will achieve non-GAAP operating profitability in 2023.

Twilio still has a long streak of growth. Management estimates its market opportunity at $87 billion in 2023, and the company stands to benefit as more companies seek to improve customer engagement through personalized communications. To that end, now seems like a good time to buy some shares of this growth stock, especially in light of its updated valuation.

Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Anthony Di Pizio has no position in the stocks mentioned. Jamie Louko holds positions at Amazon, Berkshire Hathaway (B shares), SEMrush Holdings, Inc., Snowflake Inc. and Twilio. Trevor Jennewin holds positions at Amazon and Twilio. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Berkshire Hathaway (B shares), Microsoft, Snowflake Inc. and Twilio. The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $200 short puts in January 2023 on Berkshire Hathaway (B shares) and short calls of $265 in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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