For nearly 18 months, investors have benefited from a historic rebound in the stock market. After losing 34% in about a month during the first quarter of 2020, the benchmark S&P 500 has since doubled in value.
However, not all of the winning actions were won. The next three stocks are all down at least 33%, if not more, from their 52 week highs, but can be bought with confidence by investors.
Redfin: Down 51% from 52-week high
The first winning stock that has been beaten in recent times is a tech-driven real estate company Red tuna (NASDAQ: RDFN). Since mid-February, the company’s shares have essentially been cut in half.
Why the recent rout? Interest rates hold the answer. Mortgage rates are often closely correlated with the yield on the 10-year Treasury. As the Federal Reserve talks about the possibility of easing off its bond buying program and raising rates in 2022 or 2023, mortgage rates are expected to rise. The clear and obvious concern is that higher mortgage rates could chill what has been a hot housing market.
But my point is that giving too much weight to rising mortgage rates would underestimate the transformation we are seeing in the way real estate is sold. Redfin is changing the real estate landscape in two key ways.
First, it’s about putting more money back in the pockets of buyers and sellers. Most traditional real estate companies charge a commission / listing fee that ranges from 2.5% to 3%. Meanwhile, Redfin is drastically reducing its peers with a 1% or 1.5% fee, which depends on the number of past deals with the company. According to Redfin, the national median home selling price in August was $ 380,271. Based on savings of up to two percentage points, the company’s salespeople could hang on to a median of $ 7,600.
Second, we are seeing personalization in the real estate space like never before. During the pandemic, Redfin supported buyers and sellers by offering virtual and 3D tours. There’s also the Concierge Service, which charges a fee to help sellers organize or upgrade to maximize their home’s selling price. Even the RedfinNow service makes a difference. With this service, which is offered in select cities, Redfin buys homes for cash, eliminating the hassle and haggling associated with selling a home.
Since the end of 2015, Redfin’s share of existing home sales in the United States has almost tripled, from 0.44% to 1.18%. This is a pretty good indication that this winner may offer investors for a long time.
Baidu: Down 55% from 52-week high
Another winning stock that is unlucky is China’s leading internet search provider Baidu (NASDAQ: BIDU). The company’s shares are down 55% from their 52-week high, providing the perfect opportunity for investors to buy Baidu hand-in-hand.
How does such a large growth stock lose 55% of its value in seven months? The answer lies in tighter regulations on tech stocks and certain industries in China. As an example, China hit the country’s first e-commerce business, Ali Baba, with a record antitrust fine of $ 2.8 billion in April. Any innovative Chinese tech company is seen as a potential target by regulators, which has made investors skeptical about assigning too high a valuation multiple to Baidu.
However, there is no indication that Baidu will be in the crosshairs of Chinese regulators. While politics will always be a major concern for China-based stocks versus owning stakes in US-based companies, Baidu’s long-term growth prospects far outweigh these short-term concerns. .
In China, Baidu is the undisputed linchpin of Internet search market share. Data from GlobalStats shows that it owns between 67% and 80% of all internet searches in the country in the past 12 months. In short, this means that Baidu is clearly the gold standard for advertisers looking to reach consumers in the world’s second-largest economy. If China maintains its rapid growth rate, Baidu’s marketing revenue can grow sustainably by a double-digit percentage.
Investments in cloud services and artificial intelligence (AI) are perhaps even more exciting than the core operating segment of the business. AI is a particularly fast-growing opportunity, especially given the role it could play in next-generation automobiles. Although this non-marketing revenue only represented 16% of total sales in the quarter ended in June, it was up 80% compared to the period a year earlier. Even taking into account the slowdowns in spending related to the pandemic in China, cloud and AI revenues are growing much faster than any of Baidu’s other segments.
Investors rarely get the chance to buy a winning stock with double-digit sales growth potential and a futures price-to-earnings ratio of just 14. But that’s exactly what Baidu is offering.
Vertex Pharmaceuticals: Down 33% from 52-week high
Finally, there are specialized biotechnology actions Vertex Pharmaceutical (NASDAQ: VRTX), which has lost a third of its value since reaching its 52-week high. To give you an idea of the type of winner Vertex is, its shares have grown almost 3,300% over the past 30 years.
If you’re wondering why the company has been roughed up lately, look no further than two failed clinical studies for alpha-1 antitrypsin deficiency (AATD). Last October, VX-814 was discontinued from clinical studies after elevated liver enzymes were seen in some patients. Then, in June 2021, the VX-864 was discontinued, with the company noting that it was unlikely to demonstrate a “substantial clinical benefit” in a larger study.
However, the failure of two clinical studies does not negate the incredible success of Vertex in the development of several generations of treatments for cystic fibrosis (CF). Cystic fibrosis is a genetic disease characterized by the production of thick mucus that can clog the lungs and pancreas. In total, Vertex has developed four generations of genetically specific cystic fibrosis treatments, the latest of which (Trikafta) reached an annual rate of $ 5 billion in less than two years on drugstore shelves. Vertex CF cash flow is well protected from competition.
Of course, Vertex is not satisfied with being a leader in a single indication. He has over half a dozen compounds in development, some of which have been licensed. In particular, the VX-147 for APOL1-mediated kidney disease and the VX-880 for type 1 diabetes generate the most buzz for the company, outside of its CF franchise.
If you need one more reason to buy Vertex with confidence, consider its strong cash position and insane cash flow from its CF franchise. It is a company that ended June with $ 6.7 billion in cash and cash equivalents, and generated more than $ 2.1 billion in operating cash flow during of the last 12 months. This capital could allow Vertex to go shopping, or it could even make Vertex a buyout target at some point in the future. Whatever the scenario, it’s a winning action that can be bought hand in hand.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.