3 Game-Changing Stocks Down 76% (or More) That Are Shouting Buys

While you may not like what I’m about to say, it’s the truth: stock market crashes and corrections are an integral part of the investment cycle.

Since the early 1950s, the benchmark S&P500 has gone through a double-digit percentage correction, on average, every 1.9 years. While these downdrafts can occur without warning and their speed of decline can sometimes be worrisome, these crashes and corrections also pave the way for long-term investors to buy big companies at a discount.

Currently, three game-changing stocks have fallen at least 76% below their intraday pandemic highs. Given their unique operating models, this makes these game changers a crying purchase.

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Upstart Holdings: 76% below its pandemic high

Cloud-Based Lending Platform Shareholders Reached (NASDAQ: UPST) have had nothing less than a roller coaster ride in the past six months. Shares of the company essentially quadrupled in less than three months, eventually hitting an intraday high of $401 in October. Since then they have collapsed significantly, with losses since that peak totaling 76%.

While $401 per share was probably too aggressive a valuation in the short term, this recent selloff is the perfect opportunity to buy a groundbreaking fintech stock with a bright future.

What makes Upstart so intriguing is the company’s artificial intelligence (AI)-based lending platform, which is all about efficiency. Leveraging AI helps Upstart quickly determine customer creditworthiness. The end result, for the majority of borrowers, is quick approval/denial and significantly lower costs for the financial institutions responsible for securing the loan in question.

Another extremely important thing to note about Upstart is that almost all of its revenue comes from banks in the form of service fees. In other words, improving or decreasing credit quality won’t have much of an impact on Upstart’s revenue stream, which means that this company is pretty well insulated against economic downturns and the increase in loan rates.

There is also a massive avenue for Upstart to expand its lending platform. So far, most of its efforts have targeted the personal loan market. However, the acquisition of Prodigy Software allows the company to become a force in auto loan originations. The auto loan origination market is more than eight times larger than the personal loan market. If all goes well, Upstart’s AI-powered platform could even be used in mortgage origination, which is more than six times the size of the auto loan market.

With the company’s year-ahead price-to-earnings ratio now below the consensus Wall Street sales growth rate, Upstart has become a strong buy.

A person using their smartphone to make a contactless payment at a handheld POS terminal.

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StoneCo: 85% below its pandemic peak

Even the biggest investors in the world are faced with the factory from time to time. Fintech Stock StoneCo (NASDAQ:STNE)a holding of billionaire investment genius Warren Buffett via Berkshire Hathawayretraced a whopping 85% of its all-time high to February 2021.

StoneCo’s short-term opportunity and problems both come from the same source: Brazil. Wall Street and investors are clearly concerned about the rapid rise in inflation in Brazil. Since StoneCo’s loans division is in debt, the prospect of higher interest rates could make loans more expensive for the company. With StoneCo, so far, not passing on the higher costs to small businesses and micro-traders using its lending tools, there are concerns about margin compression and growth.

On the other hand, merchant growth indicators are racing and demonstrating the incredible opportunity offered by the micro and small business ecosystem in Brazil. By the end of the third quarter, total payment volume was up nearly 54% year-on-year (excluding Brazil’s corona voucher program), with the number of active bank accounts quadrupling from 105,600 to 422,500. Based on opportunity alone, this customer growth suggests that StoneCo is only scratching the surface when it comes to digital payments and lending.

What is often lost on fintech newcomers like StoneCo is the high-margin potential of small business software solutions sales. The company’s software customer base grew by more than 200,000 year-over-year at the end of the third quarter, with pro forma sales for the segment up 27.5%. This includes recurring sales growth of 15.5% for the recently acquired Linx, as well as nearly tripling the organic growth of StoneCo’s software solutions on a year-over-year basis.

Even with the Brazilian economy struggling with less than ideal inflationary pressures, StoneCo remained profitable on an adjusted basis for the full year, and its sales continue to grow at an astonishing pace. If long-term investors can handle some short-term volatility, they have the opportunity to find a real game-changer for what I think are pennies on the dollar.

A person using their laptop to conduct a web conference with four other people.

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Zoom Video Communications: 76% below its pandemic peak

A third game-changing stock that has been completely destroyed since hitting its pandemic peak is the cloud-based web conferencing platform. Focus on video communications (NASDAQ:ZM). Shares of the company have fallen 76% from their record 2020 intraday high of nearly $589.

The problem with Zoom is that it was simply in the right place at the right time. In other words, its growth rate will slow significantly as COVID-19 vaccination rates increase and people return to some semblance of normality. In some ways, this negative opinion of Zoom skeptics has proven to be correct. For example, there was no way Zoom could sustain more than triple its sales on an annual basis. In fiscal 2022, Zoom’s sales growth is expected to reach a “modest” 54%.

But in many other ways, Zoom Video looks like a no-brainer purchase after its massive setback.

What emerges from this company is that “Zoom” has become a verb in the workplace, much like “do a Photocopyin the 1990s meant making a photocopy of something. Zoom is the undisputed market share leader in the United States for web conferencing, and it’s unlikely to drop that title anytime soon.

Additionally, Zoom Video’s conferencing solutions have become integrated into multiple facets of the workplace. Whether it’s a desktop or hybrid workforce, Zoom’s conferencing solutions help keep projects on track for businesses of all sizes. In fact, Zoom has done particularly well with large enterprises, as evidenced by the nearly doubling of the number of customers contributing $100,000 or more in revenue in the last 12 months, in the quarter ended October 31, compared to the period of the previous year.

Note that the future of Zoom is also entirely dependent on web conferencing. For example, the company’s cloud-based phone service (Zoom Phone) will provide an alternative to traditional telecommunications services. The company also has more than $5.3 billion in net cash, which it will likely use to make acquisitions that complement or expand its sales channels.

With Zoom Video Communications now below 29 times Wall Street’s consensus earnings for fiscal year 2022, that feels like a steal.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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