Buffett’s Caution Signals as a Bull Market Plods Along
The duration of a bull market remains a mystery. Historically, these investor-friendly periods last around four years, but each situation is unique. The briefest bull market over the last century lasted only two months, while the longest extended from 1987 until the dot-com bubble burst in 2000.
The current bull market kicked off after inflation fears gripped investors in October 2022. In light of the changing market climate, renowned investor Warren Buffett has started selling shares of Apple (NASDAQ: AAPL). This strategy seems to prepare him for a potential downturn, allowing him to reduce market exposure while holding cash to invest in stocks when prices are lower. However, Buffett acknowledges the unpredictability of the market:
Image source: Getty Images.
“We have no idea — and never have had — whether the market is going to go up, down, or sideways in the near- or intermediate term future,” Buffett wrote to shareholders of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) in his 1986 letter. “What we do know, however, is that occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
(Highlights added to emphasize Buffett’s point.)
With evident greed in today’s market, Buffett’s defensive approach makes sense. Nevertheless, numerous stocks still fit his criteria of “being greedy when others are fearful.” As an enthusiastic growth investor, I seek out potential business leaders before they gain mainstream recognition, even when pessimism looms over them.
In light of this, I present two promising stocks that are currently undervalued yet possess substantial long-term potential.
1. Roku
Roku (NASDAQ: ROKU) recently reported encouraging earnings. Despite these robust results, the stock plummeted as cautious investors zeroed in on conservative guidance and lower average revenues per user.
This reaction seems misplaced. Roku’s shares were already undervalued before this latest drop, and now they seem particularly appealing. The stock trades at just 2.7 times sales, especially impressive given the company’s accelerating revenue growth and the vast market it aims to capture. With digital video streaming increasingly becoming the norm for media consumption globally, Roku continues to expand its dominance from North America into other regions.
Moreover, interest in Roku is rising among investors. Notably, famed growth investor Cathie Wood is accumulating Roku shares, while the Sumitomo Group keiretsu from Japan has secured a 5% stake in the company.
Roku may not align with Buffett’s typical investments, but I see significant growth potential in this innovative media firm.
2. Fiverr
Fiverr International (NYSE: FVRR) tells a parallel story. This freelance services platform surged during the COVID-19 lockdowns of 2020 and 2021, only to see its stock prices tumble as people returned to offices and social activities. Even with the S&P 500 (SNPINDEX: ^GSPC) reaching new record highs, Roku’s stock has fallen 85% from its 2021 peak, while Fiverr’s has plummeted 91%.
The situation is painful for investors.
The similarities with Roku do not end here. Fiverr is also transforming a massive marketplace, aiming to “change how the world works together.” While its sales growth decelerated after the pandemic spike, revenue growth is gaining momentum again.
Fiverr’s stock trades at 2.8 times sales, and analysts predict a 25% jump in full-year earnings for 2024. If I am not purchasing Roku, Fiverr is likely my next buy.
Both stocks represent long-term growth opportunities with significant undervaluation. Your investment preferences may differ, but these are two stocks I currently favor.
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Anders Bylund owns shares in Fiverr International and Roku. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Fiverr International, and Roku. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
