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Buy These 3 Stocks Before Another Market Rally

By Rick Munarriz – Nov 17, 2021 at 10:50AM

Key Points

  • Twilio, Teladoc, and Toast are three stocks trading for 31% to 56% below their 52-week highs.
  • Twilio and Toast tumbled after poorly received quarterly updates, but growth is booming.
  • Teladoc has some unique headwinds at the moment, but the future of virtual medical care makes too much sense to ignore.

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These stocks are trading at least 30% off their recent highs. You may want to take advantage of the sale before the next market upswing.

Let's start with the obvious. Market timing is more luck than art or science. If you really want to buy a stock, the best time to get your buy order in is when you are financially able to do so and comfortable with the risk you're taking on. If you're a long-term investor, getting in a few ticks higher or lower becomes a rounding error over time. 

You can still do yourself a favor by buying into quality growth stocks that just happen to be out of favor. If you feel that a stock will bounce back the next time the market rallies you've pretty much talked yourself into being its next investor. Shares of Twilio (TWLO 6.73%), Teladoc Health (TDOC 10.29%), and Toast (TOST 5.51%) are all trading well below their earlier highs. Let's dive into why I think these are three stocks you should take a closer look at before another market rally. 

Someone with a money bag as a thought bubble.

Image source: Getty Images.

Twilio 

Twilio isn't a household name, but if you spend any time on smartphone apps you are probably grateful that the in-app communications specialist is around. Twilio helps developers interact with you without leaving the application itself. From letting you know that your takeout delivery order has arrived to allowing you to change your streaming service's password, Twilio connects the dots to keep you connected. 

Twilio stock is trading 32% below its all-time high, and that includes an 18% drop the day after posting poorly received financial results three weeks ago. Results were actually better than expected, as revenue soared 65% and Twilio surprised analysts who were bracing for red ink with a small adjusted profit for the period. 

What tripped up Twilio? Pick a scar. Any scar. One knock is that organic growth is decelerating sharply. Twilio's top-line spurts are often padded by acquisitions. Organic revenue rose just 38% for the third quarter, its weakest showing in nearly two years. Twilio's revenue guidance for the current quarter was OK, but its outlook calls for a larger loss than expected for the fourth quarter. Its chief operating officer also stepped down. 

There's a lot to unpack, but at the end of the day Twilio remains one of the more exciting plays on the mobile revolution. The number of developers on its platform now top a quarter million. Twilio should regain its racing stripes as an investment soon.

Teladoc Health

If Twilio trading nearly a third below this year's high seems like a big sale, try Teladoc on for size. The telehealth giant has plummeted 56% from its peak. Its market cap has fallen to the point that it's almost at what it had to pay in stock for Livongo Health last year. 

Investor appetite for telemedicine investments has waned since vaccinations made in-person medical visits somewhat safe again. Teladoc is also facing intensifying competition. However, Teladoc is still growing. It expects to hook up patients with medical pros 14.5 million times this year, up from the 10.4 million virtual visits it helped facilitate last year. 

Story stock investors may have moved on from Teladoc, but this is till a vibrant and growing business. The story doesn't end here. Analysts see the deficits cut in half next year on 28% revenue growth. That's a healthy trajectory even if the stock chart isn't exactly the picture of health right now.

Toast

If you're going to a restaurant today, there's probably a good chance that you're going to be Toast. I don't mean that you're going to get hoodwinked or wind up with food poisoning. Toast is a cloud-based software system that's taking over the restaurant industry. Toast powers the point-of-sale system for orders and managing the back of the house, but it also helps flesh out customer loyalty programs and organize delivery app pick-ups. 

Toast is a one-stop shop for eateries -- a software-as-a-service (SaaS) stock for foodies -- and there are now more than 48,000 restaurants on its platform. After seeing revenue climb just 24% last year -- not a surprise with industry sales taking a hit during the pandemic -- Toast's top line has soared 105% through the first nine months of 2021. 

Toast has only been public for two months, but with the shares down 31% since peaking two weeks ago it's looking a lot more appetizing. It should be on your menu of stocks to consider buying before the next market rally.

Rick Munarriz owns shares of Teladoc Health. The Motley Fool owns shares of and recommends Teladoc Health and Twilio. The Motley Fool has a disclosure policy.

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