Market volatility is the name of the investing game these days. While no one can say with certainty when the market will make a prolonged rebound, there has never been a downturn from which the market has not eventually recovered. It's also important to differentiate the performance of individual stocks from that of the broader market. The composition of your personal portfolio and the types of investments it holds will determine its performance in both up and down markets.
If you're looking for great stocks trading at a major discount, here are two such examples for your consideration. They could present a once-in-a-decade opportunity given their current valuations.
1. Upstart
Upstart (UPST -3.24%) may be facing challenges due to the ongoing macroeconomic environment, but it's important to understand where these headwinds are coming from and how they relate to the underlying business as a whole.
For anyone who's not familiar, Upstart acts as a loan marketplace. Its proprietary platform, powered by AI and machine learning, is designed to more effectively assess risk and default potential than through the traditional lending process. It does this by leveraging more than 1,000 data points, including non-traditional factors apart from the usual FICO score, to determine the creditworthiness of consumer applicants.
Of course, this process has a two-sided benefit, both to the consumer and the institutional partners that have historically bought the lion's share of loans processed through Upstart's platform. On the consumer side, many applicants who had previously been excluded from the lending markets due to an insufficient or nonexistent FICO score have been able to access credit. On the lending side, financial institutions can increase their transaction count while getting a more accurate picture of the risk of the consumer involved and mitigating default risk.
In a normal economic situation, as in the previous years, this system has worked extremely well. Upstart has been able to approve nearly two times more loans at the same default rate as traditional U.S. banks. And its platform has been able to increasingly automate the entire lending process. As of the end of 2022, 82% of all loans processed through Upstart's platform are completely automated.
The technology behind Upstart's platform remains a disruptor that is growing model automation and risk calibration even in the current environment. Management said in the 2022 earnings call that model accuracy upgraded as much in the last seven months as it did in the prior 30 months. But dramatic changes in lending volume are what's driving down revenue and making the company unprofitable right now.
A variety of factors are responsible for this decline in loan volume and the resulting impact on the company's balance sheet. Fewer consumers are applying for loans, and fewer institutional partners are buying the loans Upstart has processed due to the elevated risk and high interest rates present in the current environment. This also means that Upstart is carrying about $1 billion in loans on its balance sheet right now, although it boasts liquidity of $533 million and it's highly unlikely that every one of these borrowers would default.
While there's only so much Upstart can do in terms of inducing lenders to buy more of its loans, the company is working to sharpen the tools available to its institutional partners that could help these entities make more accurate decisions about funding loans in the future.
This tool is the Upstart Macro Index, which the company plans to release later this quarter. In the 2022 earnings call, CEO Dave Girouard said of this product, "In an industry-first, Upstart will provide lenders with near real-time insights into the financial health of the American consumer, allowing them to adjust their lending programs accordingly." He continued, "This is a big step toward providing banks and credit unions with lending infrastructure that autonomously, continuously, and rapidly adapts to changes in the economy."
Although fewer institutions are buying Upstart's loans right now, plenty of bank and credit union partners are still being onboarded to the platform, a positive sign for the company's ability to recover lending volume once market conditions improve. The company ended 2022 with 92 bank and credit union partners in its network, a 120% increase from the 42 it reported at the end of 2021.
Given Upstart's potential within the multibillion-dollar lending space -- and its continued innovation in core areas of lending from auto loans to personal loans -- a decade from now, investors could look back at the company's current price and realize what a rare buying opportunity it represented.
2. Teladoc
Teladoc (TDOC -3.24%) may have caught the public's attention at the dawn of the pandemic, but this business is anything but the new kid on the block. In fact, with a company history stretching back more than two decades, Teladoc is the oldest telehealth entity in the country, and its first-mover advantage has enabled it to amass a presence that handily eclipses that of any other virtual care provider in this increasingly competitive industry.
More than half of Fortune 500 companies have adopted Teladoc's platform. The telehealth behemoth also offers options for consumers who don't have insurance to access quality virtual care for a nominal one-time fee. While the adoption of virtual healthcare solutions was undoubtedly accelerated by the pandemic, the demand for these tools is consistently growing.
There are many factors driving this increased adoption as well, from significant shortages of healthcare staff to the rise of an aging population that can benefit from digital healthcare services. There's also the fact that telehealth significantly widens the availability of quality healthcare to populations who may have found it difficult to access in the past, whether due to age, lack of proximity to a medical provider, mobility issues, or otherwise.
In short, telehealth is an invaluable tool that is continuing to revolutionize the accessibility and even the affordability of healthcare systems. As the healthcare industry continues to adapt to the demands of the digital age, the telehealth space is expected to expand in kind. By 2030, it's estimated that the global telehealth industry will reach a valuation of $455 billion.
As one of the leading telehealth providers in North America, which remains one of the fastest-growing telehealth markets in the world, Teladoc is in an ideal position to benefit from these trends over the long term. It's continuing to build out its platform as a complete solution to the entirety of a consumer's non-emergency healthcare needs. From mental healthcare solutions to dermatology solutions to general wellness visits to chronic care solutions, Teladoc's wide-ranging offerings remain key drivers of its ability to grow over the long term.
Even though it probably overpaid for Livongo back in 2020, which resulted in the nearly $10 billion worth of impairment charges the company recorded in the first half of 2022, this purchase significantly strengthened its footprint in the world of virtual chronic care solutions. Bear in mind, the chronic disease management market remains one of the fastest-growing yet underserved areas of healthcare, on track to reach a valuation of $16 billion by 2030. Teladoc is now witnessing about 30% of users leveraging its chronic care solutions, up from a mere 3% before the pandemic in 2019.
Teladoc certainly has work to do in terms of profitability, but its broad market footprint and diversified line of virtual care services that continue to see growing adoption can get it there. For investors looking to capitalize on the future of healthcare, Teladoc's innovative platform remains a compelling place to park some cash. And even with shares trading up 16% year to date, they're still down over 90% from their all-time high, so this healthcare stock could present an irresistible discount opportunity given its overall potential.
