- The Nasdaq has started 2023 strong, outperforming the Dow and the S&P 500.
- Several high-growth technology stocks rose impressively after hitting 52-week lows.
- I recommend buying Etsy and Unity Software as falling inflation fuels hopes of reduced short-term rate hikes.
Stocks on Wall Street started the new year on a bullish note, amid signs that the price may have peaked. This bolstered expectations of a less aggressive rate hike by the Federal Reserve in the coming months.
Traders’ bets on a 25 basis point Fed rate hike in February rose to 94% after data on Thursday showed US consumer prices fell for the first time since May 2020. The US Federal Reserve raised interest rates by 50 basis points in December after four consecutive 75 basis point increases.
The index has outperformed the top three US indexes in 2023, gaining 5.1% so far as investors return to undervalued growth stocks amid easing macroeconomic concerns.
Given the above, I’d recommend buying shares of Etsy (NASDAQ:) and Unity Software (NYSE:) as former high-growth technology stocks look to regain their mojo after the sharp decline last year.
Despite the near-term challenges, the two tech companies still have room for improvement and plenty of room to grow their respective businesses given strong demand for their unique services and innovative tools.
Etsy
- Year-to-date performance: +9.9%
- Market Capitalization: $16.5 billion
Etsy, the online e-commerce platform for handmade goods, vintage goods, and arts and crafts supplies, has seen a powerful rebound since its 2022 stock bottomed out at around $67 in mid-June.
Shares of the Brooklyn, New York-based internet retailer are up about 90% over the past six months, far outpacing comparable returns from major industry competitors such as Amazon (NASDAQ:) (-8.8%), Shopify ( NYSE:) (+16.8%) and eBay (NASDAQ:) (+9.8%), over the same period.
Despite the recent rally, ETSY stock remains 57% below its all-time high of $307.75 reached in November 2021. At current levels, the tech company has a market cap of $16.5 billion, compared to a valuation of nearly $38 billion at its peak.
I remain constructive on Etsy and believe the arts and crafts platform will continue to be one of the top internet stocks in 2023 given improving business fundamentals, stabilizing user growth trends, and high free cash flow margins.
Consumers who flocked to the platform during the COVID pandemic have stayed to buy handmade crafts and other unique goods offered on the online marketplace. The number of active buyers on Etsy’s platform has doubled to 88.3 million since 2019, while repeat buyers — those who have made six purchases and spent more than $200 in the past 12 months — have more than tripled.
Source: Etsy
The next big catalyst is expected to come next month, when Etsy releases its Q4 financial results after the US market closes on Feb. 28.
The dates fromProfessional investing suggest that Wall Street analysts are relatively bullish ahead of this report, with analysts raising their earnings-per-share estimates at least 10 times over the past 90 days and only revising the decline once.
Source: Investing Pro
the consensus provides one eps from $1.11, the same amount as last year, while revenue is expected to grow approximately 5% year-over-year to $751.1 million. If confirmed, this would be the highest quarterly revenue in the company’s history, thanks to an expected increase in transactions of handicrafts and unique goods on its platform.
The internet retail company underlines the resilience of its asset-light business model, beating Wall Street expectations for revenues and sales for ten consecutive quarters, since the second quarter of 2020.
Unity software
- Year-to-date performance: +9.7%
- Market Capitalization: $12.6 billion
Unity Software shares lost 80% of their value in 2022 as the video game and animation software maker fell out of favor with investors amid a deteriorating macroeconomic backdrop.
However, with fears of rising interest rates, rising inflation and an impending easing of the recession, Unity Software stock has rebounded strongly since falling to an all-time low of $21.22 in early November, rising nearly 46% .
At current levels, the San Francisco, California-based tech company — which is still down 85% from its all-time high of $210 in November 2021 — has a market cap of $12.6 billion, compared to a valuation high of more than $ 55 billion.
Widely regarded as one of the leading video game software development companies, I believe that Unity Software’s stock is poised to recover from the sharp decline in 2022 and will outperform in the coming year as it remains well positioned to reap the benefits of the continued growth in demand for real-time interactive 3D content.
Unity offers a popular cross-platform game engine used to create, consume and monetize interactive content for mobile phones, tablets, PCs, consoles and virtual reality devices. In fact, it is said to power over 70% of all mobile games.
One promising sign is that the number of customers who spent $100,000 or more on Unity’s platform rose to 1,075 in the most recent quarter, up 10.5% from 973 a year ago.
Unity is expected to report its fourth quarter results on Thursday, February 2, after the market closes. The analysts have become more optimistic about the upcoming results of the maker of video game development tools, according to Professional investing, revised its earnings per share estimates upwards 11 times over the past 90 days to reflect a more than 500% increase over their initial expectations.
These revisions follow the strong performance in November, which sent equities higher.
Consensus calls for earnings of $0.01 per share, compared to a loss of $0.05 per share in the prior year. If that is indeed the reality, this would be the first profitable quarter in Unity’s history since going public in September 2020.
Revenue is expected to grow 38.3% year-over-year to a record $436.9 million, largely driven by the strong demand it has seen for its video game and digital content creation platform.
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Revelation : At the time of writing this article, I am short the S&P 500 and the Nasdaq 100 via the ProSharesShort S&P 500 ETF (SH) and ProShares Short QQQ ETF (PSQ). The opinions expressed in this article are solely those of the author and should not be taken as investment advice.
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