The stock market has been experiencing significant pressure throughout 2025, influenced by various catalysts such as China’s DeepSeek R-1 model, ongoing concerns regarding the trade war, and other sources of macroeconomic uncertainty. These factors have triggered substantial sell-offs, leading to the S&P 500 index dropping approximately 9%, even as it recently began to recover. In addition, the more growth-oriented Nasdaq Composite index has seen a decline of about 13.5% during this same period. Investors should remain vigilant about the heightened uncertainty and risks associated with investing in a volatile market environment, but these sell-offs may also present valuable opportunities to establish positions in stocks with the potential for significant long-term returns.
With this perspective, let’s explore why two contributors from Motley Fool believe these stocks represent strong buying opportunities following significant valuation pullbacks in 2025.
Keith Noonan (Reddit): Reddit (RDDT 5.50%) experienced a dramatic decline in February after the company reported fourth-quarter results that fell short of expectations in terms of user engagement metrics. The company’s share price continued to slide in conjunction with developments related to the trade war and escalating geopolitical risks. As a result of these pressures, the stock is now down an alarming 52% from its peak this year.
Despite the downturn, Reddit successfully achieved a remarkable 71% year-over-year increase in revenue, reaching $427.7 million in the fourth quarter. Furthermore, the number of daily average unique users (DAUq) increased by 39% year-over-year, hitting 101.7 million. Although this figure fell short of the Wall Street estimate of 103.1 million DAUq, it still indicates strong growth. Following its recent valuation correction, Reddit appears to be an undervalued artificial intelligence (AI) investment opportunity.
Importantly, Reddit has positioned itself as a widely-used search platform and a valuable resource for information, as it contains an extensive repository of user-generated content that provides answers to various questions. The platform’s voting system ensures that high-quality answers are prioritized, enhancing its appeal as a destination for seekers of information.
Moreover, Reddit is licensing its data for application programming interfaces (APIs) and the training of AI models, enabling clients to access real-time data streams from the platform for use in behavioral analysis and the development of applications and algorithms. A report from the International Data Corporation indicates that the market for AI (excluding China and Russia) is expected to grow at a compound annual growth rate of 20% from 2024 to 2027, potentially reaching $1 trillion by the end of the forecast period.
Reddit is actively leveraging AI to enhance the safety and relevance of the content it delivers to users, with plans to further promote localized content on its platform. By doing so, management aims to strengthen its growth internationally and expand its global reach. With the stock still significantly down, Reddit presents a compelling investment opportunity ahead of its first-quarter results scheduled for publication on May 1.
Understanding the Short-term Challenges and Long-term Opportunities for Hexcel
Lee Samaha (Hexcel): The Hexcel (HXL 2.50%) stock has declined by 30% from its high in 2025, and the reasons behind this downturn are evident. As a manufacturer of lightweight carbon fiber composites, Hexcel’s sales are closely tied to the production activities of its clients, notably its two largest customers: Boeing and Airbus, along with their suppliers. This relationship proves advantageous when production rates are high; however, it becomes a liability when supply chain issues lead to slowdowns in airplane production.
As Hexcel’s CEO, Tom Gentile, noted during the recent first-quarter earnings call, “2025 is shaping up to be another year where the production rate increases for commercial aircraft are not meeting initial expectations due to persistent supply chain disruptions.”
Consequently, during the earnings call, Hexcel revised its full-year sales, earnings, and free cash flow (FCF) guidance downward. The primary issue stems from the Airbus A350 program, where Hexcel initially anticipated delivering 84 shipsets of composites (valued at $4.5 million to $5 million each) to Airbus in 2025, but now expects to deliver only 68. This news has negatively impacted the market perception, resulting in swift adjustments to the stock price.
However, it is essential to recognize that both Boeing and Airbus continue to maintain extensive multiyear backlogs. Additionally, as Gentile pointed out, Hexcel is well-positioned to support increased production rates. This means that once sales begin to recover, the company’s cash flow is likely to experience significant growth, driven by a rise in airplane production without the need for substantial capacity expansion.
Furthermore, Hexcel typically sources its production materials locally within the U.S. and Europe, thereby mitigating the impact of tariffs, which are currently estimated to result in a hit of $3 million to $4 million per quarter—an amount that can be offset through productivity enhancements. Finally, the revised guidance for 2025 projects adjusted diluted earnings of $1.85 to $2.05 and an FCF of $190 million, which translates to a valuation of approximately 25 times earnings and 20 times FCF for 2025. This presents a favorable valuation for a stock with robust long-term growth potential.
