2 stocks to buy before they start crushing the market

Share prices of micron technology (MU -0.14% ) and Tough (EVERYONE -0.30% ) have taken a hit in 2022 during the broader market correction, but each could start to take off when companies release their quarterly earnings reports on Tuesday, March 29.

Micron Technology heads into its fiscal 2022 Q2 results with several tailwinds, such as growing demand for memory chips, tight supply and rising prices. And Chewy is benefiting from the growth of the online pet products market that still has plenty 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. 2022. Let’s see why these two stocks could start crushing the market sooner rather than later.

Two people looking at a computer screen.

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. Consensus estimates are slightly higher than the company’s guidance midpoint of $1.95 per share in earnings on $7.5 billion in revenue. It is worth noting that analysts have raised their earnings expectations for Micron substantially in the last three months thanks to the solid perspective it was delivered in December 2021.

On the bright side, the company seems able to meet high expectations thanks to favorable conditions in the memory market. More specifically, the spot price of NAND flash memory has been rising since the beginning of the year, while the price of dynamic random access memory (DRAM) has started to rise since February 2022, according to third-party estimates.

The price of NAND flash memory is expected to increase between 5% and 10% in the second quarter of 2022, according to memory market research firm TrendForce. The firm previously anticipated a 5% to 10% decline in NAND flash prices in the second quarter. Meanwhile, the price of DDR3 DRAM is expected to remain stable or increase up to 5% in Q2 due to tight supply.

At the same time, the demand for DRAM and NAND flash memory is increasing. TrendForce estimates that demand for DRAM bits 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 higher prices in 2022. Meanwhile, the NAND flash market is expected to see a 7.4% increase in revenue this year thanks to a 30.8% increase in demand, although the scenario of supply shortage could lead to higher growth.

So the stage seems set for Micron Technology to deliver a strong quarterly report. The company’s guidance suggests that its revenue is on track to rise 20% from the prior year period, while earnings per share could almost double. Improved memory market prospects could help you beat expectations, set the stage for strong guidance and give stock price a boost.

As a result, it could be a good idea for investors looking to buy growth stocks cheaply to accumulate Micron Technology shares. They are trading at just 12 times trailing earnings and 8.5 times future earnings, indicating that the stock is highly valued compared to the Nasdaq 100earnings multiple of almost 33.

2. Chewable

Chewy shares have shown signs of recovery in recent days, and the rally could strengthen after the company releases its fiscal 2021 fourth-quarter results next week. That’s because Chewy is on track to close fiscal 2021 with strong revenue growth.

Analysts expect the company to generate $2.42 billion in quarterly revenue, which is in line with Chewy’s guidance of $2.4 billion to $2.44 billion in revenue that was issued when the company released its fiscal third-quarter results. That would translate to 18% year-over-year growth at the midpoint. Chewy expects to end fiscal 2021 with a 25% increase in revenue.

One of the reasons Chewy could deliver better-than-expected sales numbers is due to an increase in online purchases of pet food and supplies. According to market research firm Packaged Facts, the e-commerce channel accounted for 36% of pet product retail sales in 2021. An estimated 9 million customers joined the online pet food shopping channel between the fall of 2019 and the fall of 2021, and Chewy has made the most of this growth.

The overall pet food and supply 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 the company has cornered almost half of this market. Packaged Facts notes that the online channel could account for 54% of pet food and retail space by 2025, giving Chewy a secular growth opportunity.

Not surprisingly, investors expect the company’s results to grow at an annual rate of 93% over the next five years. So it may only be a matter of time before Chewy’s stock starts to skyrocket again. The action has been stopped by supply chain issues lately, with the company missing out on potential sales due to product shortages. Additionally, higher labor costs have weighed on the bottom line.

Management expects supply-related headwinds to weigh on its near-term growth, but investors should not lose sight of the bigger picture. The company controls a large chunk of the lucrative (and growing) online pet product space, has a base of more than 20 million active customers, and is seeing a nice increase in spending about your products and services.

All of this makes Chewy a value stocks since it trades at only twice the sales, below the S&P 500sales multiple of 2.95, despite its potential to deliver excellent long-term growth. A stronger-than-expected earnings report could send shares higher and make Chewy relatively more expensive, so now seems like a good time for investors to go long.

This article represents the opinion of the author, who may not agree with the “official” recommendation position of a premium Motley Fool advisory service. We are motley! Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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