This has been one of the most-challenging years in decades for Wall Street and the investing community. The first six months of the year delivered the worst first-half return for the benchmark S&P 500 in 52 years! Meanwhile, the growth-driven Nasdaq Composite has tumbled more than 30% from its high point in 2022.
It's been an especially rough go for the growth stocks that led the broader market out of the doldrums following the 2020 coronavirus crash. Yet even with this poor performance, billionaire money managers remain unfazed and have continued to put their money to work on Wall Street.
The following three supercharged growth stocks plunged between 88% and 93% from their all-time highs set over the past 18 months, but select billionaires still can't stop buying them.
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Upstart Holdings: Down 93% from its all-time high
This first billionaire with eyes for beaten-down growth stocks is Susquehanna International's Jeff Yass. During the first three months of 2022, Yass oversaw the addition of nearly 140,000 shares of cloud-based lending platform Upstart (UPST -0.58%). This increased Susquehanna's stake in the company to 852,019 shares.
Of the rapidly growing companies on this list, none has taken a beating quite like Upstart. This roller-coaster stock rallied from about $30 per share to $401 in 10 months. Over the subsequent 10 months, it shed 93% of its value and ended up right back where it started.
Wall Street's concern with Upstart has to do with the Federal Reserve's aggressive monetary-policy shift. With the U.S. inflation rate hitting a four-decade high of 9.1% in June, the nation's central bank has no choice but to quickly raise interest rates. By doing so, it has dramatically reduced loan demand in all categories. There's the clear worry that reduced loan demand, coupled with higher loan delinquencies, could sink Upstart's loan-vetting platform.
But there's more to the Upstart story than meets the eye. This company is using artificial intelligence (AI) to completely disrupt the loan-vetting process. Approximately three-quarters of Upstart-approved loans are fully automated. This saves the lending institutions taking on these loans time and money.
What's arguably more important is that Upstart's AI-driven platform is opening up opportunities for applicants who'd otherwise be rejected by the traditional vetting process. Even though the average credit score of Upstart-approved applicants is lower than the average credit score of the traditional process, the delinquency rate for Upstart-approved loans has been similar. In other words, Upstart can bring a larger pool of customers to financial institutions without increasing their risk.
There's also a huge runway for Upstart to expand its services. For instance, it acquired Prodigy Software in 2021 to begin offering AI-based auto loans. The auto loan-origination market is nearly seven times larger than the personal loan-origination space that Upstart has primarily focused on.
Considering that Upstart was quite profitable when interest rates were low and the U.S. economy was booming, I believe Yass's optimism has merit.
Fiverr International: Down 88% from its all-time high
The second supercharged growth stock billionaires are piling into is online-services marketplace Fiverr International (FVRR -1.44%). Billionaire Jim Simons of Renaissance Technologies (RennTech) has been an avid supporter of Fiverr, with additions in both the fourth and first quarters. This includes the purchase of more than 195,000 shares for RennTech in the March-ended quarter.
Fiverr has certainly taken it on the chin, with shares of the company plummeting from an intraday high of $336 in 2021 to a close last week of about $40 per share. Whereas Fiverr initially benefited from the workplace disruption caused by COVID-19, Wall Street now appears unsettled about the future of the hybrid work environment. With COVID-19 vaccination rates ticking higher and people returning to offices, there's concern the freelance-focused platform may lose some luster.
But Simons may have himself a diamond in the rough -- if he's willing to be patient. With Fiverr's former nosebleed valuation descending from the heavens, investors can now focus on the company's two biggest competitive advantages.
For starters, Fiverr's freelancer marketplace is unique. Whereas most online-service marketplaces offer services on an hourly basis, Fiverr's buyers, which are companies or sole proprietors, are purchasing freelancer services as a packaged deal. This provides considerably more cost transparency than being charged by the hour, and it's helped Fiverr sustain a double-digit growth rate in average spend per buyer.
The other edge Fiverr brings to the table is its take-rate. The take-rate represents how much of the deals negotiated on its platform Fiverr gets to keep. At the end of 2020, Fiverr's take-rate was 27.1%. In the exceptionally challenging second quarter of 2022, the company's take-rate was up to 29.8%. As more deals get completed on its marketplace, Fiverr is trending toward keeping more of those dollars for itself.
If there's a silver lining to this near-term uncertainty, it's that Fiverr has remained profitable on a recurring basis. Although it still appears nominally pricey based on Wall Street's forecast earnings for 2023, its premium can now be justified with a take-rate that's well above the industry average. This makes Fiverr a potentially intriguing buy.
Image source: Getty Images.
Teladoc Health: Down 88% from its all-time high
The third supercharged growth stock that's been absolutely pummeled, yet billionaires can't stop buying, is telemedicine kingpin Teladoc Health (TDOC 0.30%). Billionaire Ray Dalio of Bridgewater Associates has been an active buyer. Dalio and his team picked up almost 97,000 additional shares during the first quarter, which boosted Bridgewater's total stake to a little north of 398,000 shares.
Like Fiverr, Teladoc finds itself 88% below its all-time intraday high set in February 2021. Over the past 18 months, it's been a relatively steady downslope from $308 per share to the $37 and change Teladoc closed at this past week.
Arguably the biggest issue for Teladoc has been investors' lack of trust in management. The company grossly overpaid for applied health-signals company Livongo Health last year and has taken massive writedowns tied to this deal in each of the past two quarters ($9.6 billion in total). What's more, the company's near-term growth rate remains uncertain due to COVID-19 vaccination rates ticking up (i.e., people returning to in-person care) and a variety of macroeconomic headwinds.
As is the theme with these three beaten-down growth stocks, Teladoc has an opportunity to prove skeptics wrong. It all starts with the company's transformative virtual-visit platform.
What makes Teladoc such an exciting long-term investment is the benefit its platform provides up and down the healthcare-treatment chain. It's more convenient for patients to consult with physicians from the comfort of their homes, and it's considerably easier for physicians to keep closer tabs on patients with chronic illnesses using telemedicine platforms.
The end result should be improved patient outcomes and less money out of the pockets of health insurers. As a general rule, anything that saves health insurers money is going to be something they heavily promote.
Despite Teledoc wildly overpaying for Livongo Health, investors shouldn't overlook the benefits of this combination. Prior to being acquired, Livongo was already profitable and targeting its care at people in the U.S. with common chronic illnesses (e.g., diabetes and hypertension). As a combined company, Teladoc and Livongo can cross-sell on each other's platforms to sign up even more chronic-care patients.
A sustained annual growth rate of around 20% throughout this decade isn't out of the question. If Teladoc can make significant progress reining in its losses as it expands its customer base in 2023, Wall Street and investors are bound to notice.
