The S&P 500 was on the verge of setting an all-time high this past week, but not every stock in the index is a winner these days.
In fact, some stocks still trade down sharply from their 2021 peaks, especially many of those that soared during the worst parts of the coronavirus pandemic. If you’re looking to scoop up some shares of stocks still sitting in the bargain bin, keep reading to learn about five stocks with high growth potential that are trading at a discount.
1. Roku
Roku (NASDAQ: ROKU) offers the leading streaming distribution platform and that’s a good position to be in. Streaming services like Netflix, Disney, Warner Bros. Discovery‘s Max, and others all rely on Roku’s reach of more than 70 million households, and Roku takes a cut of some of those subscriptions and advertising revenue.
However, the stock is still struggling to bounce back from a strategic misstep after the pandemic and a slowdown in digital advertising. Roku ramped up spending just as the pandemic-driven streaming boom was coming to an end. As a result, shares are down 81% from their peak.
Nonetheless, the stock is on the mend. The company reported positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in its most recent quarter, and revenue growth is accelerating as the digital advertising market perks back up. Roku has a lot of upside potential, especially as the top streaming services push their advertising tiers. Roku stock could be significantly higher in a few years.
2. Redfin
Like most real estate stocks, Redfin (NASDAQ: RDFN) shares have plummeted since the pandemic as the housing market slowed to a crawl.
As a result, Redfin shut down its home-flipping business Redfin Now, made several rounds of layoffs, and has seen its revenue growth turn negative.
For the third quarter, Redfin reported a 12% decline in revenue to $269 million, but there’s a silver lining. The company’s cost cuts helped it deliver an 8% improvement in gross profit, and its generally accepted accounting principles (GAAP) net loss narrowed from $90.2 million to $19 million.
Redfin stock is now down 90% from its peak, but things could soon turn around for the online real estate brokerage. With mortgage rates coming down, the real estate market could start to spring back to life. When it does, Redfin stock could surge.
3. Upstart
Upstart (NASDAQ: UPST) is another fallen angel from the pandemic. Shares of the AI-based consumer lending specialist are now down more than 90% from their COVID-19-era peak.
In 2021, Upstart was riding high as its growth was soaring and the company was solidly profitable as well. However, as interest rates rose and the economy slowed, demand for Upstart’s loans has dried up and those profits have turned to losses.
Revenue fell 14% in the third quarter to $135 million, but the company is narrowing its losses, and it reported adjusted EBITDA of $2.3 million for the quarter.
Upstart’s loans continue to perform well despite the slowdown in the business, and the company should benefit from the expected decline in interest rates this year. Upstart’s mission is to replace FICO scores as a measure of creditworthiness, and it has a tremendous addressable market ahead of it if it’s successful. In a stronger economy, the stock could easily rebound.
4. Disney
Disney (NYSE: DIS) might be the first name in family entertainment, but the stock has been struggling for years. Disney shares touched a nine-year low just months ago. The company has struggled with the transition to streaming. It’s losing money in that business, and its linear media cash cow is drying up.
However, there are signs that Disney is turning the corner. It’s narrowed its losses in the direct-to-consumer segment, and the company expects to generate a profit in streaming by the end of its fiscal year in September. Additionally, Disney’s parks and resorts division continues to crank out bumper profits, and it looks to have a strong slate of studio releases.
CEO Bob Iger recently said the company was done fixing the business and was ready to get back to building. Disney still has a ton of brand value and an incomparable library of intellectual property. If it can straighten out its business model, shares could move a lot higher.
5. Snap
Snapchat parent Snap (NYSE: SNAP) is another pandemic darling that tumbled in the economic reopening as revenue growth stalled and investors lost patience with its losses and heavy spending on share-based compensation.
However, Snap stock is suddenly soaring now that the company has emerged as a winner in the generative AI boom.
Subscriptions for its premium service, Snapchat+, which includes AI features like image generation, are climbing rapidly, recently reaching 7 million. Snap has invested significantly in AI image-based technology, including augmented reality, and the company could emerge as the leading AI social network for young adults.
While Snap’s financials have been ugly, that could start to change as the economy bounces back and the digital advertising market improves.
If the good news in AI continues for Snap, the stock could have a lot of room to run.
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Jeremy Bowman has positions in Netflix, Redfin, Roku, Snap, Upstart, and Walt Disney. The Motley Fool has positions in and recommends Netflix, Redfin, Roku, Upstart, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends Fair Isaac and recommends the following options: short February 2024 $8 calls on Redfin. The Motley Fool has a disclosure policy.
5 Struggling Stocks to Buy at a Discount was originally published by The Motley Fool
