Do the sinking major market indexes have you feeling nervous about buying stocks? After watching the benchmark S&P 500 drop more than 25% since the end of 2021, it's understandable if you're hesitant about buying stocks that keep getting battered.
At times like these, it's important to remember that a full recovery has followed every stock market meltdown in history. This is why savvy investors who buck the trend and invest during downturns like the one we're experiencing tend to outperform over time.
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Analysts on Wall Street who follow these beaten-down stocks think they aren't getting nearly as much attention as they deserve. In fact, the average price target analysts set for these stocks suggests they could double or triple your money once the rest of the market sees their underlying businesses the same way they do.
Exact Sciences
Shares of Exact Sciences (EXAS -7.04%) soared in 2020 because it was an early provider of COVID-19 diagnostics. Declining COVID testing pressured the company's performance this year and pushed the stock way down in the process.
The stock is down more than 79% from its peak in early 2021, but analysts who follow the company think it can recover. The average price target suggests it could climb 116% in the foreseeable future.
Wall Street's bullish about Exact Sciences' growing role in the market for noninvasive cancer screening. Its lead product, the heavily advertised Cologuard test, is already the most popular way to screen for colon cancer.
Over the past several years, Exact Sciences has parlayed Cologuard's profits into the development of a multicancer early detection program. In September, the company presented data that suggests it can accurately detect early cancer signals from 15 organ sites. With a chance to maintain its leading role in the exploding market for cancer screening, Exact Sciences looks like a smart buy right now.
Lovesac
Lovesac (LOVE -2.59%) is a company that benefited from COVID-related lockdowns that kept people at home. Sadly, the stock has plunged about 78% from the peak it reached last year. Analysts who follow the company are a lot more enthusiastic than the overall market. The consensus price target on Lovesac right now implies 253% upside.
Lovesac is named after the high-end beanbag chairs that it still markets but its lead products are highly configurable sectional sofas it calls Sactionals. Since they can be configured to fit almost any room and decor, updating an old Sactional is likely to be a more attractive option than buying a new sofa from a competitor.
Furniture is generally a low-margin business, but not the way Lovesac does it. The company's Sactionals are stored in stackable pieces that limit warehousing costs. Plus, a couch that can accommodate a small family costs several thousand dollars. With this amazing pricing power, the company was able to report a 52.9% gross margin in the first half of 2022. Strong profit margins, plus a wealthy customer base that is less impacted by recessions than the general public, give this stock a good chance to outperform over the long run.
Redfin
If there's one swath of the U.S. economy begging to be disrupted by technology, it's the way we buy and sell real estate. Investors on board with this idea made Redfin (RDFN -2.81%) stock a highflier in 2020 and 2021. Unfortunately, soaring interest rates and the effect they're having on home sales have soured the market's outlook.
Shares of Redfin have fallen a stunning 95% from their peak in 2021. The latest drop came in response to disappointing home sale trends that are sinking now that it's a lot harder for Americans to afford a mortgage. Investment bank analysts on Wall Street expect a big comeback. The average price target projects a 110% gain up ahead.
Redfin shares have fallen so far that you can scoop up the stock for just 0.2 times trailing-12-month revenue at recent prices. This same multiple reached double digits in early 2021 and will most likely return to low single digits once the housing market recovers.
Soaring interest rates will hammer home sales in the near term, but this isn't a total disaster for Redfin. In 2021, the company acquired RentPath in order to revamp a rental business that will provide a lifeline if home sales continue to plummet.
The road ahead of Redfin is uncertain, but the stock could explode higher once the real estate market recovers. A long recession could lead to further losses, but there's enough potential for upside that Redfin stock looks like a good fit for a well-diversified portfolio right now.
