2 Growth Stocks Down Over 75% to Buy for the Long Run

The real estate market has been red-hot over the last 12 months. According to the Case-Shiller Index, home prices have soared more than 19% in the past year and currently sit at an all-time high.

But interest rates have begun to tick higher, and the Federal Reserve has indicated its intention to take a more aggressive approach to battle high inflation, which is putting pressure on consumers. As a result, investors have been dumping the stock of some companies involved in the real estate sector, as higher rates could lead to softer house prices.

But names like Redfin (RDFN -0.74%) and Offerpad (OPAD 7.28%) are beginning to look oversold, and for investors with a five-to-10-year time horizon, this dip could present a major opportunity. 

Image source: Getty Images.

1. Redfin

Selling a home is rarely a simple process. It can involve months of marketing, showings, and negotiations, which is why most sellers turn to professional real estate brokers to handle it all. Redfin has built an army of more than 2,485 brokers across America, achieving a level of scale that allows it to significantly undercut the fees of smaller independent agents who typically specialize in narrow geographic areas. 

While the industry's average listing fee is around 2.5%, Redfin charges as little as 1%, saving consumers over $1 billion in real estate fees since the company's inception. Through the use of technology, Redfin agents are far more productive, completing 2.6 times more transactions than the industry average.

The result is an impressive share of the massive housing market: in 2021, Redfin was responsible for 1.16% of all home sales by value in the U.S.

The company also operates an iBuying segment, RedfinNow, where it purchases homes directly from sellers to flip them for a profit. It's a difficult business that resulted in staggering losses for key competitor Zillow Group (Z -0.46%) (ZG -0.69%), although Redfin has taken a more conservative approach, avoiding the same financial struggles to date. With that said, if higher interest rates trigger a dip in home prices, this practice could pose considerable risks for Redfin. 

The combination of Redfin's broking and direct buying segments has generated incredibly strong growth in the last few years. Revenue has soared at a compound annual growth rate of 48% since 2016 to $1.92 billion in 2021. Analysts expect further strength in 2022 even in the face of a potentially softer real estate market, with revenue set to top $2.7 billion. 

Redfin is a future-minded real estate company. With its stock down 86% from its all-time high of about $75, now is a great opportunity to buy and hold for the long term. When today's economic volatility settles and fears of interest rate hikes subside, Redfin's performance may even accelerate. 

2. Offerpad

Offerpad is an iBuying specialist. Unlike Redfin, the company doesn't have a brokerage segment and is solely focused on purchasing homes from sellers, renovating them, and -- ideally -- selling them for a profit. Offerpad takes a highly selective approach to homebuying, which has helped it to avoid the fate of other players like Zillow.

In fact, Offerpad operates in just 21 markets across the U.S., far fewer than the 35 regions in which Zillow was active at the peak of its iBuying dominance. To mitigate risk even further, Offerpad sticks to a stringent renovation schedule, aiming to fix and sell properties within 100 days of purchase. This reduces the possibility of Offerpad's housing inventory being impacted by price swings in the broader market.

This selective approach led to a record gross profit of over $207 million in 2021. It's an outstanding result when compared to Redfin, which effectively broke even in its iBuying segment for the year, and to Zillow, which suffered a loss and dropped the practice altogether.

These profits came on the back of soaring revenue growth compared to 2020. To cap off an already blockbuster year, Offerpad managed to generate a profit. 

Source: Offerpad. 

The company doesn't appear to be slowing down, projecting $1.1 billion in revenue during the first quarter of 2022. Analysts estimate that 2022 revenue will top $5 billion, which would represent a growth rate of 143% compared to 2021 -- a significant acceleration.

Offerpad stock has fallen 77% since hitting its all-time high of $13.63 in September 2021. Rising interest rates and the broader tech sell-off have delivered an opportunity for investors to buy this company at a steep discount that could set them up for soaring, long-term gains.