If you're looking for stocks on sale in the current market, despite the broader gains that major indices have clocked, many companies have responded in different ways. While a stock trading at a discount isn't in itself a reason to hit the buy button, great businesses are sometimes beaten down by investor sentiment and can present opportunities for the forward-thinking individual.
Here are two stocks trading at a discount to consider for your portfolio in the near future.
1. DexCom
DexCom (DXCM -0.67%) shares took a tumble recently after the company reported second-quarter earnings and offered guidance that wasn't quite what investors were hoping for. The diabetes medical device stock is now down about 40% from the start of this year, and a good chunk of that tumble has happened in the last few weeks. As always, though, a closer look at the numbers and what they actually mean is essential.
On the positive side, DexCom generated year-over-year revenue growth of 15% in Q2 2024 from sales of its continuous glucose monitoring (CGM) devices, totaling just over $1 billion. U.S. revenue rose 19% year over year, while international revenue rose 7%. Gross profits totaled 62.4% of revenue, or $626.7 million, while net income according to generally accepted accounting principles (GAAP) rose 24% year over year to $143.5 million. The company also finished the three-month period with over $3 billion in cash and investments on its balance sheet, and its revolving credit facility remained untapped.
So, what caused DexCom shares to tumble so significantly post-earnings? Well, its revenue growth rate was solid, but it decelerated compared to the more than 20% growth it had posted in the trailing quarters. Management also brought down DexCom's full-year guidance, albeit by a slight amount. The company is now predicting 2024 revenue will fall somewhere between $4 billion and $4.05 billion, instead of its prior forecast of $4.2 billion to $4.35 billion.
That new target range would represent growth of anywhere from 11% to 13% from the full-year 2023. In Q2, DexCom's growth in the durable medical equipment (DME) channel slowed. CEO Kevin Sayer noted that growth in its partnerships with DME distributors had not executed according to management expectations. A notable factor cited here was lack of planning time needed to integrate the wave of new sales representatives DexCom has onboarded recently to establish relationships with physicians.
However, management emphasized that growth in absolute customer additions remains robust. DexCom has launched multiple new CGM devices in the last few years. This includes its flagship system, the G7, which is the most covered by payers of any such device on the market and has the fastest warmup time. Q2 revenue per customer in the U.S. slowed more than management had anticipated, but this wasn't because new customers weren't onboarding. Instead, Sayer noted that rebate eligibility for its G7 CGM has been three times faster than its predecessor, the G6. This is a factor that management had expected, but that occurred earlier than anticipated. Management was firm that the effect of these rebates will cap out by the end of the year.
Another needle mover for the slowdown in growth was the fact that international sales weren't quite what management was expecting. This was because DexCom had achieved greater penetration than expected in certain core international markets for type 1 diabetic users of its CGMs. Meanwhile, DexCom sees significant growth opportunity in the widely underpenetrated type 2 diabetes market, both internationally and domestically. Customer growth has also been strong in its pharmacy business, which is part of DexCom's strategy to expand its reach in type 2 diabetes and primary care.
While these are all factors for investors to watch, DexCom's place in the diabetes care world hasn't suddenly evaporated. The company is one of the preeminent CGM makers in the world, and the still-nascent adoption of these devices for type 2 diabetics and even prediabetics provides a solid growth runway here. The wild card is obviously the surge in popularity of GLP-1 drugs, but these don't resolve the issue for users of providing real-time insights about blood glucose levels, which CGMs do. If anything, these products can go hand-in-hand.
There is no magic bullet with investing in stocks, and time will tell regarding the effect of these drugs on the growth prospects of all diabetes device makers, including DexCom. For now, though, the company remains in an overall solid financial position, is profitable, and is still a market leader. And as noted, some headwinds it dealt with in the recent quarter stemmed more from short-term hurdles than long-term headwinds. Investors with the appropriate buy-and-hold horizon may still find opportunity with this healthcare stock, and want to consider scooping up at least a few shares.
2. Opendoor Technologies
Opendoor Technologies (OPEN 0.68%) is trading down approximately 60% from its position earlier this year. The company has struggled significantly along with other real estate stocks, given the relatively nosebleed state of interest rates. Historically speaking, real estate is a cyclical business. When interest rates are high, homebuyers are not only more reluctant to sell -- people must also contend with a less favorable environment for purchasing a new home.
Opendoor's platform operates on a model that leverages artificial intelligence (AI) to facilitate home listings, offers, and sales. The company is also in its relatively early stages, as it was founded just a decade ago. How does the business work? Well, through Opendoor, homeowners can sell their house to the platform directly. Then, Opendoor does the work of selling the home to a new buyer, removing the headache of dealing with open houses, concurrent mortgages, and other elements commonly associated with the home buying and selling process.
Customers can also choose to simply list their home on the platform, and if they do not receive an acceptable offer, they can choose to accept a cash offer directly from Opendoor. Another product offering is its marketplace, which allows home sellers to interact directly with both retail and institutional buyers to facilitate transactions, instead of Opendoor taking ownership of the home.
Only a small segment of the real estate industry has adopted online technologies like AI. Bear in mind, while U.S. residential real estate transactions represented $1.6 trillion in transaction volume in 2023, iBuyers like Opendoor captured less than 1% of this total.
With its proprietary platform and an significantly underpenetrated market, Opendoor can retain an advantage over the long run with its wide-ranging product offerings to customers. These include all-cash offers, quick and seamless listings, title insurance and escrow services, and multiple ways to buy and sell a home on a consumer's own terms.
Opendoor is definitely dealing with significant headwinds right now. The company makes most of its revenue from acquiring homes from homeowners and reselling them, so it's not surprising that its balance sheet is struggling in this moment when sales are down across the industry. The company is operating at a net loss, although it did deliver a gross profit of $129 million in the most recent quarter.
Management estimates that its total addressable market is in the ballpark of $650 billion, a notable opportunity once the current inflationary situation relaxes. Opendoor outperformed its guidance for the quarter of purchasing 4,500 homes, and purchased 4,771 in total, a 78% increase on a year-over-year basis. Its Q2 sales of 4,078 homes drove $1.5 billion in revenue in the three-month period.
While inflation has cooled a bit and interest rates are expected to come down eventually, the imminent future for any business in the real estate space is bound to be choppy. That said, for investors with a multi-year buy-and-hold horizon who like to keep real estate stocks in their portfolio, there are some notable reasons to consider a position in Opendoor while it's trading at a discount.
