It's been a challenging year for tech stocks as rising rates and other macro headwinds have driven investors toward more conservative investments. It can be tempting to avoid the tech sector altogether until the market stabilizes. Still, investors should recall Warren Buffett's famous advice: "Be fearful when others are greedy, and greedy when others are fearful."
With so many tech stocks now trading far below their all-time highs, there are plenty of opportunities to get greedy. I personally believe these three unloved tech stocks fit the bill and could experience big rallies in the near future: Uber Technologies (UBER -2.03%), Coupang (CPNG 0.35%), and Pinduoduo (PDD -0.37%).
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1. Uber Technologies
Uber's stock currently trades about 35% below its initial public offering (IPO) price of $45. The bulls retreated as the pandemic temporarily disrupted its ride-hailing business, while formidable competitors like DoorDash challenged its Uber Eats food delivery segment. Its lack of profits also made it an unappealing investment as interest rates rose.
However, Uber divested its Southeast Asian, Chinese, and Indian subsidiaries and its money-losing advanced technologies group (ATG) over the past few years to narrow its losses. Its ride-hailing business also stabilized last year as the lockdowns ended, and it acquired Postmates to strengthen Uber Eats' position against DoorDash.
As a result, Uber's revenues are now rising, its net losses are narrowing, and its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) has remained positive over the past four quarters. Uber's revenue rose 57% to $17.46 billion in 2021, while its adjusted EBITDA loss narrowed from $2.53 billion to $774 million. This year, analysts expect its revenue to grow another 79% to $31.2 billion as it generates a positive adjusted EBITDA of $1.55 billion.
Those growth rates are impressive, yet Uber's stock still trades at less than two times this year's sales. But once investors start to fully appreciate Uber's changes, its stock could easily return to its IPO price and continue climbing.
2. Coupang
Shares of Coupang, South Korea's top e-commerce company, have dropped more than 50% below its IPO price of $35 as investors fretted over its slowing growth and steep losses. However, investors seem to be glossing over its obvious strengths.
About 70% of South Korea's population already lives within seven miles of one of Coupang's fulfillment centers, and it continues to expand that logistics network to maintain its edge in next-day deliveries. It also locks in its shoppers with its Amazon Prime-like "Rocket WOW" subscription service, which offers free shipping, discounts, food and grocery deliveries, and access to its streaming video platform, Coupang Play, for less than $4 a month.
Coupang's revenue rose 54% to $18.41 billion in 2021, but its adjusted EBITDA loss widened from $357 million to $748 million as it continued to launch new features and expand overseas into Taiwan and Japan.
Analysts expect Coupang's revenue to grow just 14% to $20.96 billion this year as its growth cools off in a post-lockdown market, but they also expect its adjusted EBITDA loss to narrow to just $129 million. Those growth rates might seem unimpressive, but Coupang's stock also looks dirt cheap at just 1.4 times this year's sales. Therefore, Coupang's stock could bounce back quickly if it stabilizes its sales growth and meaningfully narrows its losses.
3. Pinduoduo
I'm bearish on most Chinese tech stocks because they face unpredictable regulatory headwinds in China and unresolved delisting threats in the U.S. However, Pinduoduo might just be the exception to that rule.
Pinduoduo is China's third-largest e-commerce company after Alibaba and JD.com, but it's growing faster than both. It initially expanded across China's lower-tier cities by letting shoppers team up on bulk purchases, and it subsequently entered the agricultural market by directly connecting farmers to consumers.
Pinduoduo finished last year with 868.7 million annual active buyers, but it remains less exposed to antitrust headwinds than Alibaba and JD because it generates significantly lower revenues from each shopper. Yet, it's still growing like a weed. In 2021, Pinduoduo's revenue rose 58% to $14.74 billion, and it generated a net profit of $1.22 billion -- compared to a net loss of $1.1 billion in 2020. Analysts expect its revenue and net profit to grow another 30% and 185%, respectively, this year.
Those are explosive growth rates for a stock that trades at just 30 times forward earnings and five times this year's sales. Simply put, any positive news about China will likely drive Pinduoduo's stock higher this year.
