Buying ServiceNow and Clear Secure

There's no question that 2022 has been a difficult year for investors.

Particularly the kind of growth-oriented investing we are attempting here.

It has been a bad enough year for the S&P 500. It is down 19% so far. To put that into perspective, this will likely be the 3rd worst year since the turn of the century, trailing only 2008 (-38%) and 2002 (-23%). Another bad week and it could catch 2002 to be the 2nd worst year.

Zooming even further out, this likely will be only the 4th year since 1950 with the S&P declining over 18%. Truly, it has been historically bad.

As bad as the S&P has been, the NASDAQ has been far worse. To date, that index - where a lot of our Green Screen stocks live - is down over 31%. Since 1980, that would put 2022 only behind the tech bubble crash of 2000 (-39%), and the "Great Recession" year of 2008 (-41%).

The flip side of this is twofold. First... it makes it more likely that 2023 and beyond will deliver attractive returns for investors. Second, and related, is that it is giving us some nice buying points into excellent businesses for the long-term.

Today, we will add two Watch List stocks to the Buy List: ServiceNow (NOW) and Clear Secure (YOU).

ServiceNow (NOW)

We added ServiceNow to the watch list not long ago - see here for the full review.

This is just a fabulous business. It has recurring, subscription revenues, a massive $175 billion addressable market, extremely high switching costs, and a fantastic, sustained 30% free cash flow margin.

Despite flat stock performance over the past 2 years, NOW has returned 194% over the past 5. At current prices, it looks more than 25% undervalued. The company looks poised to continue generating excellent business results over the next 3+ years, and the market should realize the stock's true value over that time. I think this is one that can generate 15-20% annual returns. It has been added at its Friday close price.

Clear Secure (YOU)

Clear Secure is one of the lesser-known names we've looked at, but there is a lot to like. This identity verification platform has caught on at enough airports now to demonstrate its value. It looks to just be hitting the rapid part of its growth ramp, with sales tracking up 70% in 2022.

There are still a lot of legs left in the airport use case, which could be worth $6-8 billion. Clear's upcoming bundling deal with TSA Pre-Check makes a ton of sense and should juice sales even further. I'm also interested to see how the launch of its API platform fares... this could open up many new use cases the company hasn't even considered. The optionality of a biometric identity platform is an attractive characteristic.

Clear is a sustainable business at this point, throwing off nearly 30% free cash flow margins and maintaining a debt-free balance sheet. There are only so many identity providers (e.g. 1 or 2) that an airport can and will support. This creates high barriers to entry, along with network advantages.

Clear Secure has been on the Watch List for a while. The recent downswing in its stock price - magnifying the market's trend - doesn't look to be company-specific. Good for us. We will add it at Friday's close price, where it sits 29% below the fair value estimate of $38.