The end of 2021 is upon us, and the final month of trading is off to a rocky start. But it's not all bad news if you're sitting on some cash. Stock prices for several well-managed technology companies are down significantly, which might be an opportunity to put some money to work entering 2022.
Artificial intelligence fintech stock Upstart Holdings (UPST 0.18%) is down 54% from its all-time high, and it's one of the fastest-growing companies on the market right now. Semiconductor specialist Cohu (COHU 1.27%) is having one of its most profitable years ever, and with 2022 shaping up to be a repeat, investors might like the stock at its current 16% discount from November's prices.
Image source: Getty Images.
Let's take a closer look at these two stocks worth considering as we head into the new year.
1. The case for Upstart
Upstart is on a mission to unseat the long-outdated FICO credit scoring system, which Upstart management says doesn't account for some of the nuances of the modern economy. It's doing this by using artificial intelligence (AI) to assess thousands of data points when determining the creditworthiness of a potential borrower.
Upstart's processes are not reproducible using legacy technologies, and the evidence of Upstart's assessments being superior is already on display. The company says its AI algorithm approves loans that end up in default 75% less of the time than loans assessed using traditional methods. That's an attractive risk-reduction proposition for banks wanting to use its services.
Upstart doesn't lend any money itself. It simply uses its technology to originate loans for banks in exchange for a fee, meaning it's not directly exposed to the credit risk from those loans. That means loan volume is important -- more loans originated means more revenue for Upstart. Its recent entry into the vehicle lending market is therefore critical to maintaining its growth. Also, the loan size tends to be larger for autos than in typical unsecured personal loans.
The number of auto dealerships choosing to use Upstart's Auto Retail sales and lending platform has soared over the last 12 months.
|
Metric |
Q3 2020 |
Q3 2021 |
Growth |
|---|---|---|---|
|
Dealer partnerships |
91 |
291 |
219% |
Data source: Upstart.
After Upstart initially offered guidance that it would deliver $500 million in revenue during 2021, it now finds itself on track to generate over $800 million, crushing that figure. It's also profitable, with $1.96 in estimated earnings per share for the year. That places the company's stock at a price-to-earnings multiple of 89, which certainly isn't cheap -- the tech-heavy Nasdaq 100 market index trades at a multiple of 34, for example.
With that said, Upstart's rapidly expanding vehicle dealership footprint could be a precursor to significant revenue growth in 2022, outpacing even the most bullish of guidance in a similar fashion to its 2021 result. That's why Upstart could trounce its $1.17 billion in estimated 2022 sales, and be one of the top-performing stocks next year.
Image source: Getty Images.
2. The case for Cohu
In 2021, the world grappled with a crippling shortage of semiconductors, the crucial computer chips that provide the processing power for most of our prized electronics. Cohu makes critical testing and handling equipment for the world's largest chipmakers, and it's having a bumper year as it rapidly expands its production capacity.
As new vehicles, in particular, are designed with more digital features, demand for these components is soaring, and pandemic-hit producers are still racing to catch up. U.S. Domestic Auto Inventories data, which is tracked by the St. Louis Federal Reserve, is at the lowest level on record (going back to 1993) as half-built vehicles wait for the needed chips.
It highlights the effect semiconductor shortages are having on car manufacturers' ability to keep an ample supply of vehicles on their dealer lots. And for consumers, it means soaring prices. According to U.S. inflation data, new car prices are up 9.8% over the last 12 months alone.
To help alleviate these pressures, Cohu has placed additional focus on its automotive segment to the point that it's now the company's largest by revenue, at 20%. It's driven by Cohu's Neon inspection system, which is designed to handle tiny chips at incredibly high speeds while maintaining the ability to detect faults and defects efficiently. These are the semiconductors often found powering the multitude of sensors and displays in new cars.
Cohu is on track to deliver $3.01 in earnings per share for 2021, meaning its stock trades at a price-to-earnings multiple of just 11. Its stock would have to triple to match the basket of its peers measured by the iShares Semiconductor ETF, which trades at a multiple of 34.
Considering that analysts expect the company to have a similarly strong year in 2022, and that many automotive heavyweights expect chip shortages to persist, Cohu's stock could be the place to be in the new year.
