Some of the stocks that have been beaten down by 70%, 80%, or more in the recent market decline aren't likely to come back. The boom in special purpose acquisition companies (SPACs) and flurry of initial public offerings (IPOs) in 2020 and 2021 produced a lot of public companies that are starting to run into serious financial trouble in this difficult economic environment.
On the other hand, there are some beaten-down stocks that still look rather promising from a long-term standpoint. Here are three in particular -- all of which are down by 70% or more -- that I've been buying in my own portfolio recently and plan to add to even more.
Amazing growth in a challenging environment
Banking disruptor SoFi Technologies (SOFI +5.04%) was a product of the SPAC boom, and like many of its fellow ex-SPACs, its stock has performed poorly -- down about 79% from the peak. In addition to the general cooling off of high-growth stocks, investors are frustrated that SoFi's core student loan refinancing business remains at a virtual standstill, and there are worries that higher interest rates could hurt its lending operations, by far the more profitable side of the business.
NASDAQ: SOFI
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While lending growth could indeed cool off if a recession hits or inflation persists, the less profitable banking side of SoFi's business is the most exciting part from a long-term perspective. In a nutshell, by growing its reach in things like checking accounts, brokerage, and credit cards, SoFi creates a natural marketing funnel for its profitable loan products and builds a low-cost source of capital to finance its lending. Even in the difficult environment, SoFi grew its number of financial services products by 83% year over year in the third quarter, and as this side of the business grows, it positions the company well to grow its lending business as the economic uncertainty eventually dissipates.
Can this real estate innovator turn things around?
Redfin (RDFN +0.00%) is by far the worst performing stock in this discussion, down 94% from its 2021 high, and that's after a recent rebound. The cooling real estate market has been devastating to Redfin's core brokerage business, it acquired a major mortgage company and rental technology platform at the worst possible time, and its RedfinNow iBuying business wasn't producing profits. As a result, Redfin's business started losing lots of money. In the third quarter of 2022 alone, Redfin lost $90 million (its entire market cap is less than $600 million).
NASDAQ: RDFN
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However, the future could still be bright. CEO Glenn Kelman made the difficult decision to shut down RedfinNow and lay off employees and feels that by focusing on its core business and online presence, the company can turn things around. In fact, Kelman believes Redfin will be profitable by 2024. If this ends up being the case, the current share price could seem like a bargain. Plus, the real estate market is already starting to see signs of life, as mortgage rates and home prices have both come off the highs. The average new monthly mortgage payment is down $300 from the peak, and Redfin's Homebuyer Demand Index increased 6% compared to December.
2023 could be a pivotal year for this tech company
Pinterest (PINS +3.52%) is the best performing company on this list, with shares "only" 70% below their 2021 highs. And to an extent, the declines have made sense. Pinterest's user base actually declined for several quarters as COVID-19 restrictions started to disappear, and as a largely ad-based model, the company could find it difficult to keep growing monetization in a recession.
NYSE: PINS
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However, Pinterest's most exciting days could still be ahead of it. The company has understood for years that it is a natural fit for e-commerce -- after all, people generally browse Pinterest to find things they'll end up buying. Just recently, Pinterest has decided to get serious about it. The company brought in e-commerce veteran Bill Ready as its new CEO, and its strategy should start to emerge this year. If Pinterest can successfully position itself in the e-commerce landscape, it could take the company's monetization to the next level.
It could be a bumpy ride
To be sure, all three of these stocks are facing significant headwinds right now. SoFi's business could struggle if rates stay elevated and a recession hits. Redfin needs a lot to go right in the housing market before its business can reach profitability. And Pinterest's business could face slowing ad revenue in a challenging economic environment.
Having said that, I'm confident that the long-term trajectory for all three businesses is upward. All have multibagger potential, and I'm putting my own money behind all three.
