- Sold-Off Stocks have the best upside at the greatest margin of safety and lowest prices
- Coinbase (COIN) – Crypto platform has a growing global addressable market.
- Corsair Gaming (CRSR) – high-end gaming demand is limited by supply, if only temporarily.
- Netflix (NFLX) – subscriber loss in the quarter will reverse.
- PayPal Holdings (PYPL) – realizing higher transaction volumes will increase revenue and PayPal’s stock price.
- Roku (ROKU) – streaming platform viewership and average revenue per user are on the rise.
- Teladoc Health (TDOC) – margin expansion will follow the write-down.
- Warner Bros. Discovery (WBD) – a strong content library for its global platform will drive recurring revenue higher.
Their margin of safety increases when the stock price falls. In light of higher economic risks ahead, markets are compensating investors for taking more risks. Those macro risks may hurt prospects for companies in various sectors. Conversely, the market is potentially over-reacting.
Monthly inflation rates are rising at a pace not seen in over 40 years. The Federal Reserve will raise interest rates at a measured pace in each of its next meetings this year. This improves the attractiveness of debt, increasing their investment returns. Stocks need to compete for higher-paying debt obligations.
Readers have seven sold-off stocks that fell for several months. Some of them are still close to their 52-week lows. They may still struggle in the short-term period as they adjust to tougher market conditions. But investors are getting those stocks at low historical prices. Sentiment will inevitably shift when the companies report better quarterly results.
|WBD||Warner Brothers Discovery||$17.15|
Sold-Off Stocks: Coinbase Global (COIN)
Weak stock markets pulled Coinbase (NASDAQ:COIN) lower. Markets also punish the cryptocurrency platform giant whenever crypto prices fall. A portion of stock valuations, especially in technology, is arbitrary. Stocks are worth what market participants are willing to pay. This unknown applies to the value of crypto prices. The market will attract less speculative money until volatility stops. Coinbase scared investors with its aggressive global expansion efforts.
Chief Executive Officer Brian Armstrong wrote in his blog that it plans to hire 1,000 staff in India. This is part of Coinbase’s efforts to expand in the country. The company believes that crypto is the best means for increasing economic freedom globally. To get there, it must facilitate its use anywhere in the world. Coinbase wants to leverage India’s established identity and digital payments infrastructure. It wants to combine web.3 technology with crypto. India’s adoption will result in more crypto-based transactions. This should lift Coinbase’s revenue.
When Coinbase acquires BtcTurk for over $3.2 billion, it will expand its global presence. Its presence in Turkey will take advantage of the local currency’s decline. People will need a crypto exchange to avoid further losses in the Turkish lira.
Bet on Coinbase’s global growth supporting its share price higher from here.
Corsair Gaming (CRSR)
Investors will categorize Corsair Gaming (NASDAQ:CRSR) as one of many post-pandemic tech stocks that crashed. The supplier of high-end gaming computers and PC accessories traded as high as $42.97 in the last year. The company timed its initial public offering perfectly. It raised the maximum amount of money in good times. Bears are still betting against CRSR stock. The short float is in the double-digit percentage. Corsair’s quarterly earnings warning validated the bearish call.
Corsair’s weak preliminary first quarter is due to temporary issues. It cited difficult year-on-year comparisons for the tougher comparisons. Last year, Corsair and the gaming market benefited from the lockdown. Stimulus checks also encouraged people to buy Corsair’s flagship high-end gaming computer.
Still, the product shortage limits Corsair’s revenue realization. In Europe, demand weakened. This is due to higher inflation in the region. The Russia and Ukraine conflict also hurt consumer confidence.
Corsair’s prospects look brighter from here. Prices for graphics cards (GPU) fell every month since January. They are getting close to MSRP (manufacturer’s suggested retail price). Moreover, the GPU shortage is ending. When Corsair fulfills the pent-up demand, it will post higher revenue. This will lift CRSR stock.
Sold-Off Stocks: Netflix (NFLX)
Netflix (NASDAQ:NFLX) stunned investors when it reported its first loss in subscribers. In the first quarter, it lost 200,000 subscribers. Revenue rose by 9.9% Y/Y to $7.87 as Netflix earned $3.53 a share.
In the second quarter, Netflix expects revenue of $8.05 billion. It will earn $3.00 a share. Netflix management mulled over the idea of introducing a lower-priced ad-supported model. Markets believe this is a mistake. Shares sold off and failed to recover. Netflix raised subscription rates, pressuring cash-strapped customers to cancel their plans. The company also thought of preventing current members from sharing their passwords.
Customers who recently canceled their subscription are unlikely to sign up again on a lower tier, ad-supported plan. Netflix is all about “chilling” without ads. Customers already put up with too many ads per video viewed on YouTube. Companies already saturated content with excess ads in between videos.
Netflix should re-baseline its expenditures on acquiring content. It should offset the savings by lowering the current subscription rate. This might convince customers who share their passwords with family not to cancel their service.
PayPal Holdings (PYPL)
PayPal Holdings (NASDAQ:PYPL) began its rebound when it posted first-quarter profits. In Q1, it earned 88 cents a share (non-GAAP). Revenue grew by a modest 7.8% Y/Y to $6.5 billion. In 2022, it expects non-GAAP EPS in the range of $3.81 to $3.93. Revenue will grow by 15% to 17%.
PayPal’s stock slump already prices its revenue growth deceleration ahead. On its conference call, CEO Daniel Schulman said needs to re-evaluate its product line and its capabilities. That way, it will strategize on growing its market share again.
The company will focus on the checkout experience. It will need to double down on the digital wallet to grow its online transaction volumes. To increase operating efficiency, PayPal needs to increase management’s accountability. For example, it will hold product managers accountable for business performance.
PayPal’s 15% to 17% revenue growth forecast is lower than its previous outlook. SVP, Corporate Finance & Investor Relations Gabrielle Rabinovitch said that the global e-commerce volumes are lower than previously expected. Still, the company will re-accelerate its growth when secular tailwinds support its business. Ahead of that happening, PYPL stock will trend higher from here.
Sold-Off Stocks: Roku (ROKU)
Roku (NASDAQ:ROKU) is in a post-pandemic slump like PayPal and Netflix. As investors snap up the stock at lower prices, ROKU stock may potentially rebound from here.
In the first quarter, Roku posted a 19-cent GAAP loss. Revenue rose by 27.8% Y/Y to $734 million. The streaming platform reported a 34% Y/Y rise in average revenue per user, to $42.91. Streaming hours increased by 1.4 billion hours to 20.9 billion. On its conference call, CEO Anthony Wood said that Netflix’s advertising-supported subscription streaming is potentially appealing. If it succeeds in winning back subscribers, Roku benefits, too.
Roku makes money by connecting consumers with content and advertisers. The advertising market is shifting away from traditional television. This is a $60 billion opportunity that Roku could take. The company needs to navigate past near-term macro headwinds first. After that, it has a good chance of realizing the opportunities ahead. The shift to streaming will continue despite market conditions.
ROKU probably fell low enough for cautious investors to consider today.
Teladoc Health (TDOC)
Investors lost confidence in Teladoc Health (NYSE:TDOC) after it posted a massive $41.58 share loss. This included a non-cash, goodwill impairment charge of $41.11, or $6.6 billion. After the report, analysts downgraded the stock. Per Tipranks, the average price target is around $57.44. Fortunately, analysts often warn investors about downside risks after the decline.
Teladoc worked for over 12 months on integrating the Livongo products into its whole-person care experience. This work is still not done. The delay created uncertainties for investors. Impatient with the progress, investors dumped TDOC stock. Those who buy shares now will need to wait for a few quarters before the product integration work pays off. Markets will award patience. Eventually, Teladoc’s strong Primary365 product will reverse the company’s under-performance.
The harsher market conditions for virtual health will limit Teladoc’s advertising efforts. It needs a disciplined approach, as it optimizes its business and attracts customers with limited advertising support. Operating at lower costs, the company may expand its adjusted EBITDA margins as its direct-to-consumer business from BetterHelp performs well.
Sold-Off Stocks: Warner Bros. Discovery (WBD)
Warner Bros. Discovery (NASDAQ:WBD) rose at first, then fell steadily, after its split from AT&T (NYSE:T). On April 26, 2022, WBD warned investors that it needed to resolve its “messy” assets. It cut its profit expectations, leading to a big drop in its share price that day. WBD blamed unplanned projects for contributing to the revenue of $500 million below expectations. Conversely, Discovery will offset the weak performance.
Warner Bros used the quarterly report to post all the negative news. For example, it decided to shut down CNN+. This is a positive move because it will exit money-losing businesses. Looking ahead, WBD has over $40 billion in revenue potential. It must realize positive cash flow from operations. It can cut down on customer churn on HBO Max. Furthermore, Discovery offers viewers unique content. The company should invest in this segment to grow Discovery’s business in Europe.
Investors are taking a wait-and-see attitude on WBD. This set a flower on WBD stock from here. CEO David Zaslav demonstrated his clarity on what the company needs to grow its profits from here. On the conference call, CEO Zaslav said it would monetize its compelling intellectual property. It needs to have a strategic focus on a global platform. It has a wide reach on a potential audience willing to pay.
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