The meme stock craze of 2021 was certainly a historically unique market environment. Many stocks, some heavily shorted and some just interesting speculative growth plays, rocketed sharply higher -- often doubling, tripling, or more in a very short time. And many took investors on quite a roller coaster ride for months.
To be sure, most meme stocks aren't worth buying as long-term investments. For example, it's tough to make a long-term investment case for AMC Entertainment (AMC 4.79%). On the other hand, there are some stocks that got caught up in the meme stock trade that look like solid long-term investments. And this is especially true now that there's been a massive correction in many high-growth stocks.
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A massive opportunity and a great strategy
Offerpad (OPAD 6.38%) is a real estate company that is a so-called iBuyer, or instant buyer, of homes. Offerpad's core business involves buying homes directly from sellers, doing cosmetic repairs, and then selling them directly to buyers, hopefully earning a profit in the process.
However, there are a couple of things that set Offerpad apart from its peer group (which really only consists of two other companies). For one thing, Offerpad is the only iBuyer that is more focused on efficiency than all-out growth. Its unit economics have been better than those of its peers, and while it won't be consistently profitable for some time, it isn't that far from it right now.
Second, Offerpad isn't necessarily trying to completely replace open-market home sales. Its Offerpad Flex product encourages customers to list their home on the open market (with an Offerpad partner agent) and gives them a cash offer to keep in their back pocket in the event they get tired of the traditional sale process.
Offerpad went a bit meme-stockish after its late 2021 special purpose acquisition company (SPAC) merger was completed, at one point rocketing to nearly $21 from its $10 pre-SPAC valuation. Now that the SPAC boom has cooled, Offerpad has plunged to less than $6, in line with many other recent SPAC targets. But make no mistake -- this is a real business with a huge market opportunity.
Tons of disruptive potential
One of the most discussed stocks in some of the most popular trader chat rooms in 2021, SoFi (SOFI 0.85%), went public through a Chamath Palihapitiya-backed SPAC last year (this was "IPOE" for those who follow Palihapitiya). It started out as a private student loan company but has since evolved into a financial ecosystem, complete with a full lineup of lending products, a credit card, a bank account, a brokerage account, and more. The company also owns the Galileo financial services API and payments platform, which provides functionality for 89 million financial accounts operated by partners.
To say SoFi's growth has been phenomenal would be an understatement. The fintech's user base has nearly doubled over the past year to more than 2.9 million members, and these users account for roughly 4.3 million different financial products. And it's on the non-lending side of the business where the growth has been especially impressive, with a 179% year-over-year increase in products as of the third quarter of 2021.
SoFi has the capability to be a true disruptor of the traditional bank model and is making all the right moves to scale its business in a sustainable way. With shares down 36% in the last two months, now could be a great time to add it at a discount.
The most exciting growth is yet to come
Last but certainly not least, insurance disruptor Lemonade (LMND 0.56%) has been a big victim of the recent growth stock headwinds, with shares down by about 35% in the past couple of months and a total of 80% off their all-time high.
Lemonade is an insurance technology company, aiming to provide a better way to get insurance quotes, buy policies, and submit claims. In the company's core business of renters and homeowners insurance, customer feedback has been incredibly strong.
However, it's the rollout of Lemonade Car, the company's much-anticipated auto insurance product -- along with the pending acquisition of Metromile (MILE +0.00%) -- where Lemonade could accelerate the availability of the product and rapidly scale the business. If the company can replicate its early insurance success in the auto space, and can keep loss ratios in check, Lemonade could be a big winner for patient investors.
Remember what you're buying
To be sure, these three stocks are real businesses with great long-term growth opportunities. However, it's important to keep in mind that while the "meme stock" craze has died down, that doesn't mean it has permanently gone away. And if it comes back, all three of these stocks are likely to experience quite a roller coaster ride. Before you add any of these to your portfolio, it's important to be prepared for that possibility.
