While you might not like what I'm about to say, it's the truth: Stock market crashes and corrections are a perfectly normal part of the investing cycle.
Since the beginning of 1950, the benchmark S&P 500 has navigated its way through a double-digit percentage correction, on average, every 1.9 years. While these downdrafts can come without warning and their downside velocity can be, at times, worrisome, these crashes and corrections also pave the way for long-term investors to buy into great businesses at a discount.
Right now, three game-changing stocks have fallen at least 76% below their pandemic intra-day highs. Given their unique operating models, it makes these game-changers screaming buys.
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Upstart Holdings: 76% below its pandemic high
Shareholders of cloud-based lending platform Upstart (UPST -0.58%) have had nothing short of a rollercoaster ride over the past six months. Shares of the company essentially quadrupled in under three months, ultimately hitting an intra-day high of $401 in October. Since then, they're petered out in a big way, with losses since this peak totaling 76%.
While $401 a share was likely too aggressive a valuation in the near-term, this recent sell-off is the perfect opportunity to buy a game-changing fintech stock with a bright future.
What makes Upstart so intriguing is the company's artificial intelligence (AI)-driven lending platform, which is all about efficiency. Leaning on AI helps Upstart quickly determine the creditworthiness of customers. The end result, for a majority of borrowers, is a quick approval/denial and substantially lower costs for the financial institutions responsible for procuring the loan in question.
Something else that's incredibly important to note about Upstart is that nearly all of its revenue comes from banks in the form of servicing fees. In other words, improving or declining credit quality won't have much of an impact on Upstart's revenue stream, which means this company is pretty well-protected from economic downturns and higher lending rates.
There's also a massive runway for Upstart to expand its lending platform. Until now, most of its efforts have targeted the personal loan market. However, the acquisition of Prodigy Software allows the company to become a force in auto loan originations. The auto loan origination market is more than eight times larger than the personal loan market. If all goes well, Upstart's AI-driven platform could even be used in the mortgage origination space, which is over six times the size of the auto loan market.
With the company's forward-year price-to-earnings ratio now below Wall Street's consensus sales growth rate, Upstart has become a screaming buy.
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StoneCo: 85% below its pandemic high
Even the world's greatest investors face-plant from time to time. Fintech stock StoneCo (STNE 0.07%), a holding of billionaire investing genius Warren Buffett via Berkshire Hathaway, has retraced a whopping 85% from its all-time high hit in February 2021.
StoneCo's opportunity and near-term issues both derive from the same source: Brazil. Wall Street and investors have been clearly concerned about rapidly rising inflation in Brazil. Because StoneCo's loan division is back by debt, the prospect of higher interest rates could make lending more costly for the company. With StoneCo, thus far, not passing along higher costs to the small businesses and micro-merchants utilizing its lending tools, there's concern about margin and growth compression.
On the other hand, merchant growth metrics are running wild and demonstrate what an incredible opportunity the micro and small business ecosystem offer in Brazil. As of the end of the third quarter, total payment volume had grown almost 54% year-over-year (excluding Brazil's coronavoucher program), with the number of active banking accounts quadrupling to 422,500 from 105,600. Based purely on opportunity, this client growth suggests StoneCo is just scratching the surface when it comes to digital payments and loans.
What's often lost for fintech up-and-comers like StoneCo is the high-margin potential for software solution sales to small businesses. The company's software client base grew by more than 200,000 year-over-year at the end of Q3, with pro forma sales for the segment up 27.5%. This including recurring sales growth of 15.5% for the recently acquired Linx, as well as a near-tripling in organic software solutions growth from StoneCo on a year-over-year basis.
Even with the Brazilian economy contending with less-than-ideal inflationary pressures, StoneCo has remained profitable on a full-year adjusted basis, and its sales continue to grow at an astounding pace. If long-term investors can stomach some near-term volatility, they have an opportunity to pick up a true game-changer for what I believe is pennies on the dollar.
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Zoom Video Communications: 76% below its pandemic high
A third game-changing stock that's been absolutely pummeled since hitting its pandemic high is cloud-based Web-conferencing platform Zoom Video Communications (ZM 1.46%). Shares of the company have tumbled 76% from their 2020 record intra-day high of nearly $589.
The concern with Zoom is that it was simply in the right place at the right time. In other words, its growth rate will slow down dramatically as COVID-19 vaccination rates tick up and people return to some semblance of normal. In some respects, this negative take from Zoom skeptics has proved accurate. For instance, there was no way that Zoom was going to be able to keep up a more-than-tripling of its sales on an annual basis. In fiscal 2022, sales growth for Zoom is expected to come in at a "modest" 54%.
But in many other respects, Zoom Video has the look of a no-brainer buy following its massive pullback.
What stands out about this company is that "Zoom" has become a verb in the workplace, much in the same way that "making a Xerox" in the 1990s meant to make a photocopy of something. Zoom is the undisputed market share leader in the U.S. for Web-conferencing, and is unlikely to relinquish this title anytime soon.
Furthermore, Zoom Video's conferencing solutions have become embedded in multiple facets of the workplace. Whether it's an office or hybrid workforce, Zoom's conferencing solutions are helping to keep projects on track for businesses of all sizes. In fact, Zoom has done particularly well with big businesses, as evidenced by the near-doubling in customers contributing $100,000 or more in trailing 12-month revenue, as of the Oct. 31-ended quarter, relative to the prior-year period.
Take notice that Zoom's future is entirely dependent on Web-conferencing, either. For instance, the company's cloud-based phone service (Zoom Phone) will provide an alternative to traditional telecom services. The company is also sitting on more than $5.3 billion in net cash, which it'll likely use to make acquisitions that complement or broaden its sales channels.
With Zoom Video Communications now below 29 times Wall Street's consensus earnings for fiscal 2022, it looks like a steal.
