2 Stocks to Buy Hand Over Fist Before They Start Crushing the Market

Share prices of Micron Technology ( MU -0.14% and Chewy ( CHWY -0.30% have been hammered in 2022 during the broader market correction, but each could start taking off when the companies release their quarterly earnings reports on Tuesday, March 29.

Micron Technology is heading into its fiscal 2022 second-quarter results with several tailwinds, like the growing demand for memory chips, the tight supply, and rising prices. And Chewy is benefiting from the growth of the online pet products market that still has a lot of room to expand.

That’s why investors looking to buy potential growth stocks amid the tech sell-off should take a closer look at shares of Micron and Chewy, which are down 16% and 22%, respectively, so far in 2022. Let’s see why these two stocks could start crushing the market sooner rather than later.

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Image source: Getty Images.

1. Micron Technology

Wall Street expects $7.52 billion in revenue from Micron for the second quarter of fiscal 2022, along with earnings of $1.97 per share. The consensus estimates are slightly higher than the midpoint of the company’s guidance of $1.95 per share in earnings on $7.5 billion in revenue. It is worth noting that analysts have substantially increased their earnings expectations for Micron over the past three months thanks to the solid outlook it delivered in December 2021.

The good part is that the company seems capable of meeting the heightened expectations thanks to the favorable conditions in the memory market. More specifically, the spot price of NAND flash memory has been heading higher since the beginning of the year, while the price of dynamic random access memory (DRAM) has started increasing since February 2022, according to third-party estimates.

The price of NAND flash memory is expected to increase 5% to 10% in the second quarter of 2022, according to memory-market research firm TrendForce. The firm was earlier anticipating a decline of 5% to 10% in NAND flash prices in the second quarter. Meanwhile, the price of DDR3 DRAM is anticipated to either stay flat or increase by up to 5% in the second quarter due to tight supply.

At the same time, the demand for DRAM and NAND flash memory is rising. TrendForce estimates that DRAM bit demand is expected to increase 17% in 2022, but Micron CEO Sanjay Mehrotra predicts that the shortage of chips is likely to continue well into 2023. As a result, the DRAM market should continue to enjoy stronger pricing in 2022. The NAND flash market, meanwhile, is expected to witness a 7.4% increase in revenue this year thanks to a 30.8% increase in demand, though the tight supply scenario could lead to stronger growth.

So the stage seems to be set for Micron Technology to deliver a robust quarterly report. The company’s guidance suggests that its revenue is on track to increase 20% over the prior-year period, while earnings per share could nearly double. The improving prospects of the memory market could help it exceed expectations, set the stage for robust guidance, and give the stock price a shot in the arm.

As a result, it might be a good idea for investors looking to buy a growth stock on the cheap to accumulate shares of Micron Technology. They are trading at just 12 times trailing earnings and 8.5 times forward earnings, indicating that the stock is a great value when compared to the Nasdaq 100‘s earnings multiple of nearly 33.

2. Chewy

Chewy stock has been showing signs of a turnaround over the past few days, and the rally could get stronger after the company releases its fiscal 2021 fourth-quarter results next week. That’s because Chewy is on track to close fiscal 2021 with solid revenue growth.

Analysts expect the company to deliver $2.42 billion in quarterly revenue, which is in line with Chewy’s guidance of $2.40 billion to $2.44 billion in revenue that was issued when the company released its fiscal third-quarter results. That would translate into 18% year-over-year growth at the midpoint. Chewy expects to end fiscal 2021 with a 25% increase in revenue.

One reason Chewy could turn in better-than-expected sales numbers is because of an increase in online shopping for pet food and supplies. According to market researcher Packaged Facts, the e-commerce channel accounted for 36% of retail sales of pet products in 2021. An estimated 9 million customers have joined the online pet food shopping channel between fall 2019 and fall 2021, and Chewy has made the most of this growth.

The overall pet food and supplies industry generated $50 billion in revenue last year, indicating that the online channel accounted for $18 billion in sales. Chewy’s annual revenue forecast of $8.92 billion suggests that the company has cornered nearly half of this market. Packaged Facts points out that the online channel could account for 54% of the pet food and retail space by 2025, so Chewy is sitting on a secular growth opportunity.

Not surprisingly, investors expect the company’s bottom line to increase at an annual pace of 93% for the next five years. So it may be only a matter of time before Chewy stock starts soaring once again. The stock has been hamstrung by supply chain issues of late, with the company missing out on potential sales due to product shortages. Also, higher labor costs have weighed on the bottom line.

Management expects the supply-related headwinds to affect its near-term growth, but investors shouldn’t lose sight of the bigger picture. The company commands a big chunk of the lucrative (and growing) online pet products space, it has a base of more than 20 million active customers, and it is witnessing a nice increase in spending on its products and services.

All of this makes Chewy a value stock since it is trading at just two times sales, lower than the S&P 500‘s sales multiple of 2.95, despite its potential to deliver terrific long-term growth. A stronger-than-expected earnings report could send the stock higher and make Chewy relatively more expensive, so now looks like a good time for investors to go long.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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