2022 was a generally bad year for stocks, but some got hit much harder than others, and not just speculative growth stocks. Some of the largest and most profitable businesses in their respective industries dramatically underperformed the market.

With that in mind, here are three stocks – all of which were roughly cut in half during the 2022 downturn – that could rebound sharply if the stock market has a strong year in 2023.

Don’t bet against this two-industry leader
Amazon (AMZN) declined by 47% in 2022, and there were a few good reasons. For one thing, recent sales data shows that consumers are starting to pump the brakes on discretionary spending, and they may continue to do so if we see a recession. And profitability hasn’t exactly been at the level investors want to see in recent quarters due to cost increases and supply chain issues.

However, from a long-term investor’s perspective, now could be a great time to take another look at Amazon. It’s rare for a company to have a leading market share in two industries, but that’s exactly what Amazon is. The company has about 40% of U.S. e-commerce, as well as about 34% of the cloud infrastructure market through its AWS business.

Both still have tons of room to grow. E-commerce represents just 15% of U.S. retail sales, and this is expected to steadily climb. Plus, Amazon has several big opportunities to grow its presence internationally. On the Amazon Web Services side, which is the much higher-margin business, the market itself is expected to more than quadruple in size by 2030.

A real estate leader with room to grow
Commercial real estate finance company Walker & Dunlop (WD) had a tremendous period of growth heading into 2022, but like most other parts of the real estate industry, the business has cooled down a bit, sending the stock down by 46% in 2022. Interest rate increases have led to margin compression, and the company’s revenue and earnings have declined.

However, not all of the news is bad. Through the first three quarters of 2022, Walker & Dunlop had a 17% share of Fannie Mae-backed multifamily loans, more than 200 basis points higher than its peak share in 2020. The servicing and asset management businesses are doing very well, and the acquisition of Alliant ended up being well-timed as appetite for alternative investment strategies remains strong. With a strong balance sheet, excellent leadership, and tons of room to grow as the real estate market normalizes, this could be an excellent opportunity to add this long-term winner to your portfolio.

As the housing market normalizes, this could be a big winner
With median home prices about 40% higher than 2019 levels and mortgage rates rising from about 3% to 7% in 2022, the housing market has slowed down dramatically. New home builders have suffered, and Dream Finders Homes (DFH) is no exception. The order cancellation rate was 25.5% in the third quarter, sharply higher than 13.9% a year prior. Plus, new home orders were down 15% year-over-year.

However, Dream Finders’ results looked generally strong, despite the weak market conditions. Home closings increased 68% year-over-year and average sales prices are 30% higher. And the company ended the quarter with a backlog of 6,758 homes, which should keep it very busy (and profitable) even if the market stays weak well into 2023. Plus, with its land-light business model and focus on some of the hottest Sun Belt real estate markets, Dream Finders could be in a position to thrive as the market starts to normalize.

Don’t buy just because of what could happen in 2023
As a final thought, while all three of these could certainly double in 2023 if things go well, I’m not saying that they will or that it’s even likely. However, these are well-run businesses with lots of long-term potential, and long-term investors who buy at these levels could be handsomely rewarded.

— Matthew Frankel

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Source: The Motley Fool