With the stock market in a tailspin, I’ve been searching for the best shares to buy now for the long term. After all, history has proven countless times investing in stocks trading at cheap valuations is one of the best ways to generate substantial long-term returns.
That said, it doesn’t mean I should go out and buy every beaten-down stock. Plenty of companies are being sold off for good reasons.
But for the high-quality businesses capable of enduring short-term disruptions and thriving for the next decade, I see only opportunity. And there are two stocks already in my portfolio that I’m planning on buying more of in my next round of capital injection.
One of the best?
Volatility in foreign currency exchange rates creates a lot of headaches. But for Alpha FX (LSE:AFX), it breeds opportunity. The financial services group provides currency risk management and alternative banking solutions.
With all the volatility seen in 2022, demand for its services is rising. As a result, the group has increased its FX client base from 881 at the end of 2021 to 975 today. Meanwhile, its alternative banking division is seeing a surge in popularity, with total customers jumping from 1,746 to 3,061 in the last six months.
As such, its latest interim results reported revenue and pre-tax profits growing by 35% and 16% respectively, versus a year ago. Yet despite this impressive performance, the stock is down around 15% in the last 12 months. Why?
Profit margins have taken a hit due to increased internal investments that have yet to deliver value. Meanwhile, the surge in FX volatility, especially concerning the US dollar, does open the door to higher operating risks for this business. If its traders fail to correctly predict trends, it could significantly harm client relationships.
Nevertheless, Alpha FX’s track record of navigating volatility seems solid, in my eyes. And while its P/E ratio of 26 is certainly not cheap, it looks like a fair price to pay given the long-term potential of this rapidly expanding enterprise.
A potential return to glory?
The video game sector experienced some immense growth during the pandemic, as lockdowns provided a nice tailwind for demand. That helped propel the Frontier Developments (LSE:FDEV) share price to impressive heights.
Unfortunately, following the poorly-received Odyssey expansion to its Elite Dangerous franchise and lower-than-anticipated early sales for its Jurassic World Evolution 2 title, its market capitalisation was pounded into oblivion, falling by 50% in the last 12 months.
However, looking at its latest results, things seem to be improving. Sales of Jurassic World have caught up, delivering more than £60m in revenue since launch. Its other IPs continue to retain high popularity following the release of additional paid content. And its highly anticipated Formula 1 title was released to critical acclaim along with strong sales.
So it’s not surprising that overall top-line sales have hit an all-time high of £114m. Impairment charges relating to Odyssey have sent profits down the drain, elevating the investment risk. Even more so now that rising interest rates are making raising external capital more expensive.
Yet this is a one-time charge. And Frontier’s pipeline of upcoming titles looks impressive, in my opinion. That’s why I feel the drop in stock price makes it potentially a bargain right now.