There’s always a collection of excellent stocks to buy during both bull and bear markets. However, they’re often in places where most people aren’t looking.
After all, when most investors are all chasing the same latest trend, valuations can reach pretty lofty levels. And overpaying for a business, even a good one, can lead to lacklustre investment returns.
In the current economic climate, several industries have fallen out of fashion. Looking at my own portfolio, digital advertising is one. And yet, this lack of love seems to have created some potentially exciting long-term buying opportunities.
With that in mind, if I had £1k today, here’s one stock I’d consider buying more of.
An undervalued top stock?
Thanks to the sudden rise of inflation and subsequent interest rates, consumer spending on discretionary products has slowed significantly. This has been particularly problematic for the e-commerce industry, which has even seen titans like Amazon take a hit.
As a consequence, these firms have been cutting costs. And in most cases, it was the advertising budget that ended up getting slashed. This, in turn, triggered a significant slowdown in growth for the digital advertising group dotDigital (LSE:DOTD).
The software-as-a-service company enables businesses to automate their digital marketing campaigns through emails, social media, and text messages. It’s proven to be a critical tool for small- and medium-sized businesses seeking to attract and retain customers online.
Despite continuing to post expanding top-line numbers, the stock is still down over 70% since September 2021. With the e-commerce market cooling rapidly last year, growth fell from high double-digits to low single digits, triggering a mass exodus of shareholders.
While frustrating, it wasn’t entirely surprising given the premium this business was trading at when e-commerce was still strong. Today, dotDigital trades at a price-to-earnings ratio of around 21. Compared to the current financial results, this seems reasonable. But looking at the forecasts for the digital advertising space in 2024 and beyond, this looks like a top stock to buy, in my opinion.
Winter is starting to thaw for digital advertisers
A recent report by research group BCC Research has predicted that the digital advertising market is already on the rebound. And by 2027 could double in size to reach $1.2trn, versus $628.8bn at the end of 2022.
This translates into an estimated 14.7% annualised growth rate in total addressable market size for dotDigital. And is firmly ahead of the group’s current rate.
Of course, the company isn’t the only player in this space. There are other competing platforms with far more financial resources working hard to secure new market share. If dotDigital can’t attract and retain customers, the industry’s upward trend could fail to lift this growth stock back to its former glory.
But its track record shows management seems to have a knack for creating sticky relationships with its users. And providing it can tap into these new opportunities as businesses restore their advertising budgets, the stock could be set to surge over the coming years.
In other words, the winter for digital ad spending seems to be over. And buying near the bottom of the cycle is a proven strategy for building wealth. That’s why I think this is one of the top stocks to buy today.
