We're in the closing weeks of 2023 now, and looking back to the start of the year, most investors would probably be surprised that stocks have posted such strong gains this year. Though fears of a recession have persisted and interest rates have remained elevated, stocks still managed to soar this year. The S&P 500 is up 19.4% for the year, while the Nasdaq Composite has jumped by 36.3%, partially driven by excitement over new artificial intelligence (AI) technologies and a reversal of a sharp sell-off in tech stocks in 2022.
Going into 2024, investors are likely to be surprised again, but there are some clues as to where markets might head next year. Most prognosticators now expect the Federal Reserve to begin lowering interest rates next year, which should offer some support to growth stocks that had been hard hit by the Fed's campaign to rein in inflation.
In particular, three stocks that are down sharply from their pandemic-era peaks that could double next year are Upstart (UPST 2.76%), Redfin (RDFN 8.49%), and Opendoor Technologies (OPEN 3.38%). Let's take a closer look at each one to see why they could double in value next year.
Image source: Getty Images.
1. Upstart: Disrupting consumer lending through AI
Upstart (UPST 2.76%) wowed investors in 2021, soaring nearly 2,000% from its initial public offering (IPO) price as the consumer lending platform posted blowout growth and strong profits. However, as easy stimulus money ran out and interest rates spiked, Upstart's revenue tumbled and its profits have evaporated. Naturally, the stock plunged along with it.
Despite those challenges, Upstart's promise of disrupting the FICO score remains just as strong as it was when the business was firing on all cylinders. What's changed is the macroeconomic environment. Higher interest rates made consumers less interested in borrowing, and recession fears made banks reluctant to take over these loans that are initially put on Upstart's books with the intention of selling them off within the first six months.
If current trends persist into 2024, inflation should continue falling as the economy seems likely to stabilize and interest rates could start to come down. That should support renewed interest in Upstart's loans, both from consumers and the company's lending partners. Additionally, Upstart recently launched a home equity line-of-credit product in a handful of states, expanding into the massive home lending market.
Upstart stock is still down 92% from its 2021 peak but jumped 21% on Friday on news that Treasury yields fell, a possible preview of next year.
2. Redfin: A digital-first approach to real estate
Like Upstart, Redfin was a big winner during the pandemic, but the stock has plunged since then, down 92%.
Real estate stocks, in general, have been hit hard by the Fed's interest-rate hikes, which caused mortgage rates to soar, cooling down the housing market. For companies like Redfin, which make money from residential real estate transactions, that's been a problem. Redfin saw revenue decline for the last few quarters. It closed its home-flipping business, Redfin Now, and went through several rounds of layoffs to streamline the business.
Those efforts to streamline the business seem to be paying off. Redfin significantly narrowed its generally accepted accounting principles (GAAP) net loss in the third quarter and posted an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profit of $7.7 million, up from a loss of $12.5 million in the quarter.
Redfin stock has also been highly sensitive to interest-rate movements, climbing 11% on Friday, and falling interest rates next year would likely drive a surge in 2024.
3: Opendoor: A direct play on the real estate market
Finally, Opendoor Technologies has had a rough couple of years, as mortgage rates rose and the housing market cooled down. The home-flipper's business model is based on buying homes and selling them for more money. It's a great strategy in a hot housing market when prices are soaring but much more challenging when inventory is low and prices are falling.
Opendoor responded to the headwinds by pumping the brakes on homebuying. In the third quarter, it bought 3,136 homes, down from 8,380 in the quarter a year ago, and year-over-year revenue fell 71% in the quarter to $980 million. Home prices remained elevated, but low inventory and high mortgage rates forced it to scale down its transactions.
However, mortgage rates have already started to ease and are likely to fall further if the Fed lowers the federal funds rate. That would almost certainly juice Opendoor's stock price, which is down 91% from its 2021 peak, as its business model is likely to respond quickly to a strengthening housing market.
