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While the major stock market indices have surged to start 2024, some stocks have taken a beating over the past few years. Cloud computing provider DigitalOcean (NYSE: DOCN) and entertainment juggernaut Walt Disney (NYSE: DIS) have disappointed investors, with both stocks down at least 50% from their peaks.

While both companies are facing challenges, there are some good reasons to buy the stocks at beaten-down levels.

DigitalOcean

Since peaking during the pandemic, shares of DigitalOcean have tumbled nearly 75%. The cloud computing provider's growth slowed as customers pulled back on spending. Acquisitions, including managed hosting provider Cloudways, brought on high-value customers, but overall growth has remained sluggish into 2024.

Revenue rose by just 12% year over year in the first quarter, and a net dollar retention rate below 100% signals that the company is struggling to convince customers to expand spending. However, the real story is profitability. Despite slowing growth, DigitalOcean is converting around 20% of its revenue into free cash flow. The company is also profitable on a GAAP basis thanks to disciplined spending.

Demand for cloud computing will grow in the long run, and DigitalOcean is in a prime position to serve the developers and small businesses that don't want to deal with a sprawling platform like Amazon Web Services. DigitalOcean estimates that its total addressable market today is $114 billion, with that number set to nearly double by 2027. With annual revenue still well below $1 billion, DigitalOcean should be capable of double-digit annual growth for many years to come.

At the current beaten-down stock price, DigitalOcean is valued at about $3.1 billion. Based on the midpoint of the company's full-year guidance, the stock trades for about 20 times free cash flow. That seems like a reasonable price to pay given the large market opportunity.

DigitalOcean is investing in AI and rolling out new high-value services, and its customer base won't remain so stingy forever. Once the company rekindles its growth, the stock should reclaim some lost ground.

Disney

Down more than 50% from its pandemic-era peak, Disney stock has been a disappointment for the past few years. While Disney is still working to turn itself, there are signs that the company is starting to make progress.

First, the film business is picking up steam. Disney dominated the box office up until a few years ago, but too many mediocre movies have led to a quality problem. The Marvel franchise in particular has been struggling to find its footing.

Disney plans to make fewer movies and put a focus on quality. Only one Marvel movie will come out this year, Deadpool and Wolverine, and it has the potential to be a blockbuster given the success of the Deadpool movies. On the animation front, Pixar's Inside Out 2 was a much-needed smash hit, bringing in over $1.2 billion at the box office so far.

Disney is also on the cusp of turning its streaming business into a profitable enterprise. The company accepted massive losses as it grew its subscriber base, but price hikes and a newfound focus on quality over quantity have boosted revenue and brought down costs.

The direct-to-consumer business brought in $5.6 billion in revenue during the most recent quarter, up 13% year over year. Operating income was $47 million, a positive swing of more than $600 million from the prior year period. While subscriber growth was sluggish, it was still positive. Disney spent more on marketing but managed to decrease the cost per hour of content available.

The parks and experiences business has been strong, posting solid revenue and profit growth. Disney still has work to do with everything else, but the company is making meaningful progress. Valuing Disney is tough -- I have no idea how much the company will earn five years from now given all the moving parts. But with the company's market capitalization barely higher than it was a decade ago, investors may be overly pessimistic.

Disney's turnaround will take time, but it's never a good idea to bet against the iconic company in the long run.

Should you invest $1,000 in DigitalOcean right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Timothy Green has positions in DigitalOcean and Walt Disney. The Motley Fool has positions in and recommends Amazon, DigitalOcean, and Walt Disney. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.