Stock markets are falling fast and nobody knows when they'll find a bottom. This summer it briefly seemed like the major market indices were on the road to recovery, but those gains were quickly wiped away.
At times like these, there's a strong temptation to remain on the sidelines until we can be sure that market bears are sound asleep in their caves. There's a big problem with this strategy, though. Nobody knows where the bottom is exactly.
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Instead of trying to time the market, it makes a lot more sense to consistently scoop up beaten-down shares of the best businesses you can find. These two stocks have fallen 51.4% and 70.9% from the peak prices they reached in 2021. We can't predict when their stock prices will recover, but we can reasonably expect their underlying businesses to deliver rapidly growing profits for many years to come.
1. Doximity
Doximity (DOCS 0.97%) is a digital platform for U.S. medical professionals. At its heart is a social media operation that serves its members a curated feed containing extremely lucrative advertisements. With an estimated 80% of the nation's physicians on board, it's far and away the country's largest network of healthcare providers.
Shares of Doximity got off to a strong start following the company's IPO in June 2021. Unfortunately, the stock has been beaten down 70.9% from the all-time high it set last September.
Unlike most social media platforms, Doximity's members can't upload their own posts in an attempt to go viral. Instead, Doximity entices physicians, physician assistants, and nurse practitioners with tools that make their jobs easier.
Doximity's most popular tool is Doximity Dialer. This is an application that lets physicians use their office phone numbers from their personal smartphones to contact patients in a setting that complies with strict privacy laws. During the quarter that ended June 30, 2022, care providers used Dialer to contact patients around 200,000 times per day.
Doximity is a high-conviction stock because giving physicians the tools they want is clearly a profitable business. During the quarter that ended June 30, the company reported a $22.4 million net profit. That worked out to an impressive 25% of topline revenue. With a commanding lead in the niche market it created, Doximity's bottom line could explode higher in the years to come.
2. Duolingo
Since launching in 2012, Duolingo (DUOL 3.64%) has become the world's most popular way to learn languages. In fact, Duolingo is the most popular education app on Apple's app store and Alphabet's Google Play Store.
Investors noticing the company's success drove the stock through the roof following its IPO last summer. Sadly, a market scorned for growth stocks has hammered shares of Duolingo down 51.4% from their peak price last fall.
Dramatic stock price disasters like these are usually associated with poor operating performance, but that isn't the case here. During the second quarter, the company reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) that rose 13.5% year over year to $4.2 million.
Duolingo's a high-conviction buy right now because it's converting subscribers with a learning platform that is constantly improving. Everyone can use the Duolingo app for free but there were 3.3 million paid subscribers on the app at the end of June. That was a staggering 71% more than the company reported a year earlier.
Duolingo's development teams are constantly running tests to determine which features convert free users to paid subscribers and its working. The number of paid subscribers at the end of the second quarter was equal to 25% of daily active users during the three-month period. A year earlier, just 20.8% of daily active users had paid subscriptions.
With 49.5 million monthly active users at the end of June, Duolingo has more opportunities to test new lessons and features than its competitors. This should allow it to stay several steps ahead of any potential competition in the long run. With a strong advantage that keeps getting stronger, it's just a matter of time before the stock price recovers and climbs to new heights.
