In this article, we will take a look at the 12 best beaten down stocks to buy now.
The US equity market has been very volatile since the start of 2022. The three leading indices of the US stock markets are deep in the red year-to-date (YTD). The Dow Jones Industrial Average (DJIA), the S&P 500 Index, and the tech-heavy NASDAQ Composite Index have lost 6%, 16%, and 28% of their values since the start of 2022. This will be the first yearly decline for the leading market indices since 2018 and the biggest in terms of percentage since the financial crisis of 2008. However, the overall sentiment is expected to see a turnaround as the Consumer Price Index (CPI) data reflected the increase in prices was lower than expected for November 2022. The CPI increased by only ten basis points (bps) on a month-over-month (MoM) basis and by 7.1% YoY. Meanwhile, the analysts’ forecasts stood at 0.3% and 7.3%, respectively.
The US Federal Reserve has increased interest rates on seven occasions in 2022. At the latest meeting of the policymakers on December 14, the benchmark interest rate was increased by 50 bps to 4.25% – 4.5%. The Federal Reserve also revealed that it intends to increase the benchmark interest rate by 0.75% next year to surpass the level of 5%. This means that any possibility of an interest rate cut should not be expected till 2024. In such circumstances, numerous companies with solid growth prospects, such as Tesla, Inc. (NASDAQ:TSLA), Lyft, Inc. (NASDAQ:LYFT), and Warner Bros. Discovery, Inc. (NASDAQ:WBD), have seen their stock prices dip. The macroeconomic challenges provide investors an attractive opportunity to go long on some of the best beaten-down stocks now.
Photo by Ruben Sukatendel on Unsplash
Our Methodology
The stocks shortlisted have lost significant value in the equity market due to macroeconomic uncertainty. The list includes small to large-cap companies belonging to various sectors. These companies are considered to have strong business models that would help them bounce back once the market gains momentum. We have also taken a look at the growth catalysts offered by each of these companies and the analysts’ ratings. The stocks have been ranked according to the level of hedge fund ownership as of Q3 2022.
12 Best Beaten Down Stocks to Buy Now
12. Zhihu Inc. (NYSE:ZH)
Number of Hedge Fund Holders: 6
YTD Stock Price Performance: -74%
Zhihu Inc. (NYSE:ZH) is a Beijing, China-based online platform where queries are posted, replied to, amended, and organized by the members of the group. The platform, founded in 2010, has the distinction of being one of the five biggest online content communities and the biggest online community based on the question-and-answer (Q&A) model.
In a research note issued on December 14, Leo You at CLSA initiated coverage on Zhihu Inc. stock with an Outperform rating and target price of $1.50. The analyst highlighted that the company is in a strong position due to its industry leadership position in the Q&A content community. The platform has a user base of 100 million young Chinese people, well-educated and eager to share ideas. The analyst sees Zhihu Inc. as offering high growth prospects with the potential for greater monetization in the near future.
Citadel Investment Group raised its stake in Zhihu Inc. by over 1000% during the third quarter of the year.
11. Rent the Runway, Inc. (NASDAQ:RENT)
Number of Hedge Fund Holders: 9
YTD Stock Price Performance: -55%
Rent the Runway, Inc. (NASDAQ:RENT) is a Brooklyn, New York-based e-commerce platform founded in 2009 that allows users the ability to rent, subscribe or buy apparel and accessories put together by leading designers.
In a research note issued to investors on December 8, Ross Sandler at Barclays assigned Rent the Runway, Inc. stock an Overweight rating. The analyst highlighted that Rent the Runway, Inc. reported revenue and adjusted EBITDA that were $4 million and $5 million higher than the consensus forecast, respectively. Furthermore, the management presented a positive picture of the company’s growth prospects at the earnings call. Rent the Runway, Inc. is making significant efforts to lower its costs and develop a self-funding business structure. This has also raised the confidence of the investment community regarding the entity’s expansion plans.
As of Q3 2022, Rent the Runway, Inc. was held by 9 hedge funds.
10. Sorrento Therapeutics, Inc. (NASDAQ:SRNE)
Number of Hedge Fund Holders: 10
YTD Stock Price Performance: -75%
Sorrento Therapeutics, Inc. (NASDAQ:SRNE) is a San Diego, California-based clinical stage and commercial biotech company founded in 1989. The company has a diverse pipeline that intends to improve the lives of people suffering from cancer, COVID-19, and intractable pain.
On November 2, Brandon Folkes at Cantor Fitzgerald commenced coverage on Sorrento Therapeutics, Inc. stock with a target price of $5 and an Overweight rating. The analyst believes that the company can develop best-in-class therapeutics in the field of infectious disease, pain, and oncology. The analyst recognized that the width of the product pipeline has resulted in a valuation discount for the company. On December 6, Sorrento Therapeutics, Inc. received a go-ahead from the US Food and Drug Administration (FDA) to commence clinical trials for its mRNA COVID-19 vaccine candidate against the Omicron variant.
As of Q3 2022, Sorrento Therapeutics, Inc. was held by 10 hedge funds.
9. Riot Blockchain, Inc. (NASDAQ:RIOT)
Number of Hedge Fund Holders: 11
YTD Stock Price Performance: -81%
Riot Blockchain, Inc. (NASDAQ:RIOT) is a Colorado-based Bitcoin mining company that is aggressively growing its mining operations in the US.
Mike Grondahl at Northland assigned Riot Blockchain, Inc. stock a target price of $10, along with an Outperform rating on December 15. The analyst made this determination after the company organized a call to share the details of its current operations and the way forward into next year. Grondahl believes that Riot Blockchain, Inc. is in a stellar position to experience growth that can be fueled by the strong cash in hand and Bitcoin reserves. The company is already considered one of the biggest vertically integrated Bitcoin miners globally. Experts believe that Riot Blockchain, Inc.’s market share could grow to more than 4% by the end of 2023.
8. Ginkgo Bioworks Holdings, Inc. (NYSE:DNA)
Number of Hedge Fund Holders: 24
YTD Stock Price Performance: -80%
Ginkgo Bioworks Holdings, Inc. (NYSE:DNA) is a Boston, Massachusetts-based biotech company. The firm leverages the power of genetic engineering in the form of strain improvement and enzyme discovery to develop new bacteria or improve the ones in existence for a wide variety of industrial applications.
Gaurav Goparaju at Berenberg initiated coverage on Ginkgo Bioworks Holdings, Inc. with a $6 target price and a Buy rating. In an update issued on November 28, the analyst highlighted that the company is leveraging its platform to scale the application of synthetic biology across a wide variety of end markets. The analyst distinguished Ginkgo Bioworks Holdings, Inc. as the only horizontal platform in the segment. Goparaju concluded that the company is in a stellar position to disrupt cell programming across numerous industries.
Of the 920 hedge funds in Insider Monkey’s database, Ginkgo Bioworks Holdings, Inc. was held by 24 hedge funds as of Q3 2022.
7. Coinbase Global, Inc. (NASDAQ:COIN)
Number of Hedge Fund Holders: 28
YTD Stock Price Performance: -84%
Coinbase Global, Inc. (NASDAQ:COIN) is a developer and operator of one of the leading cryptocurrency exchange platforms globally. The company, founded in 2012, allows the buying and selling of cryptocurrencies along with other leading digital currencies as well.
Experts believe that Coinbase Global, Inc. can survive and benefit from the downturn in the cryptocurrency universe in the long term. The industry has been recently shocked by the surprising downfall of FTX and its founder Sam Bankman-Fried. This is expected to dent the confidence of investors in cryptocurrencies. However, once the downturn overturns, Coinbase Global, Inc. is expected to emerge as one of the biggest beneficiaries due to its strong cash position and its focus on streamlining its operations.
Here’s what Hayden Capital said about Coinbase Global, Inc. in its Q2 2022 investor letter:
“Coinbase: The crypto ecosystem moves extremely quickly, and there’s been many new developments since we first invested in Coinbase, a year ago. Most notably, crypto market cap has declined from a peak of ~$3 Trillion last fall, to ~$1.1 Trillion today (a -63% decline, and -72% peak-to-trough; LINK). Crypto is a volatile asset class, and has experienced many draw-downs of similar magnitude in the past. For example, Bitcoin was down -93% during 2011, -85% from 2013-15, and -84% from 2017-18. In this context, the latest draw-down is a pretty normal outcome for this emerging asset class.
A large reason for this volatility, is simply because there aren’t any major “real-world use cases” for the asset just yet. In our letter outlining the investment last year, we wrote that crypto is still “in the middle of ‘crossing the chasm’ into mainstream adoption & use cases, which will result in millions of mainstream users needing to transact crypto in some form”…” (Click here to see the full text)
6. Rivian Automotive, Inc. (NASDAQ:RIVN)
Number of Hedge Fund Holders: 30
YTD Stock Price Performance: -62%
Rivian Automotive, Inc. (NASDAQ:RIVN) is an Irvine, California-based manufacturer of electric vehicles (EVs). The company founded in 2009 is one of our two picks from the EV sector that have been heavily beaten down and should be bought at the current levels.
George Gianarikas at Canaccord reiterated a Buy rating on Rivian Automotive, Inc. with a target price of $55. The analyst shared that the company has enough cash on hand to fund its operations till 2025. Furthermore, it was revealed that Rivian Automotive, Inc. has decided to hold its plan of manufacturing EVs in Europe following a partnership with Mercedes-Benz. Gianarikas highlighted this development as a positive, as the company is focused on capital preservation during an economic downturn. Rivian Automotive, Inc. is expected to experience production downtime in Q1 2023 because of the company’s execution of the internal motor platform.
Here’s what Meridian Funds said about Rivian Automotive, Inc. in its Q3 2022 investor letter:
“Rivian Automotive, Inc. (NASDAQ:RIVN) manufactures electric vehicles (EVs) for the consumer and commercial markets. We initially invested in the company when it was privately owned. Among the many things that differentiate this startup is its substantial cash balance and relationship with Amazon, which is both an investor in the company and the first customer for Rivian’s commercial van. Several positive developments contributed to share strength in the quarter, including the company’s announcement that production of its R1 pickup trucks and EV delivery vans increased nearly 70% over the previous quarter. Management also reaffirmed its production target of 25,000 vehicles for 2022. Despite raising the price of its R1 truck earlier this year, Rivian continued to see strong demand for its vehicles, demonstrated by 98,000 pre-orders for its R1 truck and SUV. Although we are pleased with the company’s progress, we liquidated our position as Rivian approached the high end of our market cap threshold and its relative valuation became less attractive.”
In addition to Rivian Automotive, Inc., companies like Tesla, Inc., Lyft, Inc., and Warner Bros. Discovery, Inc. are also some of the best beaten down stocks to buy now.
5. Nu Holdings Ltd. (NYSE:NU)
Number of Hedge Fund Holders: 33
YTD Stock Price Performance: -46%
Nu Holdings Ltd. (NYSE:NU) is a Sao Paulo, Brazil-based provider of digital banking platforms.
Experts regard Nu Holdings Ltd. as one of the most successful financial institutions in the Latin American region, with a customer base of 70 million. The relatively weak stock performance is a surprising fact because the rising interest rate was expected to be favorable for financial institutions like Nu Holdings Ltd.. The company is focused on coming up with new products related to mortgages, working capital requirements and increasing its loan portfolio as well. Nu Holdings Ltd. has an asset-light business model and inducts new customers easily because of its easy-to-apply loan process. Analysts think the company has the potential to experience a strong rise in stock price due to its efficient growth plans.
Atmos Capital raised its stake in Nu Holdings Ltd. by over 2600% during the third quarter of the year.
4. Lyft, Inc. (NASDAQ:LYFT)
Number of Hedge Fund Holders: 37
YTD Stock Price Performance: -60%
Lyft, Inc. is a San Francisco, California-based ride-hailing and food delivery service provider.
Itay Michaeli at Citi assigned Lyft, Inc. stock a Buy rating with a target price of $45 in a report published on December 5. There is a widespread belief amongst experts that Lyft, Inc. had a strong October in terms of sales, and the current economic downturn has already been priced into the stock. Furthermore, the Street is bullish on the stock as it believes the company can emerge as a stronger entity with a laid-out plan to achieve higher profitability. The risk and reward profile for Lyft, Inc. is skewed towards reward from the current depressed levels.
As of Q3 2022, Lyft, Inc. was held by 37 hedge funds.
3. Farfetch Limited (NYSE:FTCH)
Number of Hedge Fund Holders: 50
YTD Stock Price Performance: -70%
Farfetch Limited (NYSE:FTCH) is a London, UK-based e-commerce platform that sells products and accessories from over 700 luxury boutiques and brands globally.
On December 5, Oliver Chen at Cowen assigned Farfetch Limited stock a target price of $8, along with an Outperform rating. The company intends to reach a gross merchandise value (GMV) of more than $10 billion by 2025 with an EBITDA margin of 10%. Furthermore, Farfetch Limited is working aggressively to achieve profitability and foresees its marketplace to grow by 8% to 10% annually and achieve a profit margin of nearly 5%. There is a widespread belief that the stock’s selloff has been overdone, providing an attractive entry point for potential investors.
Here’s what Polen Capital said about Farfetch Limited in its Q1 2022 investor letter:
“We also initiated a position in global luxury fashion e-commerce marketplace Farfetch in the first quarter and took advantage of meaningful weakness in the company’s share price during the period. Farfetch previously had too large a market cap for the Portfolio, but it has since moved to a level where it’s appropriate to own it – both in this Portfolio and in our smid-cap strategy. The company’s fundamentals remain attractive as indicated by the compelling results Farfetch reported in February.
The company remains an early mover with “the world’s only truly global marketplace for luxury at scale”. Farfetch has broader reach around the world with a diversity of brands that is much larger than its competitors. Many of the items it sells are exclusive. Our research shows that its brand assortment, brand image, geographic breadth, an inventory-light business model, a more compelling offering for luxury partners, and artificial intelligence are all competitive edges for the company. We believe Farfetch is well-positioned for the continued market share shift from offline to online in this category. The personal luxury goods market has trailed other categories in online penetration, but consumer behaviors and preferences shifted as a result of the pandemic creating more comfort with purchasing goods like this online. Changed behavior and the general shift to a higher portion of Millennial and Gen Z luxury shoppers supports this continued shift as does the growth in emerging market demand.”
2. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Number of Hedge Fund Holders: 61
YTD Stock Price Performance: -45%
Warner Bros. Discovery, Inc. is a New York-based media conglomerate that came into being in April 2022 following the spin-off of WarnerMedia by AT&T Inc. and its merger with Discovery Inc.
On December 7, Jessica Reif at Bank of America termed Warner Bros. Discovery, Inc. as the provider of the best value in the media industry. She assigned the stock a Buy rating with a target price of $21. The analyst noted that Warner Bros. Discovery, Inc. had executed significant changes on operational and strategic levels, and this will result in annual synergies of over $2 billion from 2023. The analyst thinks Warner Bros. Discovery, Inc.’s ability to monetize has improved across various divisions. The company is in the middle of restructuring to streamline its operations further.
Here’s what Distillate Capital Partners LLC said about Warner Bros. Discovery, Inc. in its Q1 2022 investor letter:
“Warner Bros. Discovery was the next largest position added to the portfolio and came after a nearly-50% price decline in the quarter. Consequently, the stock offers a mid-teens free cash flow yield and is expected to earn nearly half of its enterprise value in free cash over the next three years.”
1. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 88
YTD Stock Price Performance: -20%
Tesla, Inc. is an Austin, Texas-based designer and manufacturer of EVs.
The company has an industry leadership position in technology but has seen a decline in stock price due to uncertain macroeconomic circumstances slowing down the sales of EVs. Furthermore, the focus of the company’s CEO Elon Musk has been called into question in recent times as he has recently acquired the social media and microblogging site Twitter for a huge sum of $44 billion.
Joseph Spak at RBC Capital thinks that Tesla, Inc. stock could remain under pressure as expectations related to gross profit margin are recalibrated amongst the investor community. The company has slashed its prices in the Chinese market to grow its market share and compete with the local Chinese EV makers. However, once the expectations are recalibrated, Tesla, Inc. has the potential to generate healthy earnings and cash flows for its investors. The analyst issued the report on December 15 and assigned Tesla, Inc. stock an Outperform rating with a target price of $225.
Baron Funds shared its outlook on Tesla, Inc. in its Q3 2022 investor letter. Here’s what the firm said:
“Tesla, Inc. (NASDAQ:TSLA) makes fully electric vehicles (EVs), related software offerings, solar and energy storage products, and battery cells. After a tough second quarter that included a prolonged shutdown of one of Tesla’s key manufacturing facilities in Shanghai, the company demonstrated a significant 40% sequential increase in production volumes resulting in another quarterly record of production and deliveries. Despite the second quarter complexities, inflationary pressures, and production ramp-up of two new facilities (Berlin and Austin), the company exceeded Wall Street expectations in the second quarter. It maintained healthy 26% normalized gross margins, achieved industry-leading 18% adjusted operating income margins, and has generated over $14 billion of cash from operations over the past year. Moreover, due to Tesla’s high level of vertical integration and U.S. manufacturing capacity, the company is expected to be one of the key beneficiaries of the Inflation Reduction Act, qualifying for significant manufacturing and consumer-related incentives. We believe these incentives can add up to tens of billions of dollars over the coming decade, while also enhancing Tesla’s competitive advantage versus other automakers. The company also held its second artificial intelligence day, which presented continued advancements in its vehicle self-driving program and showcased its rapidly evolving humanoid robot developments (check out the Optimus videos on YouTube). We continue to believe Tesla is well positioned to benefit from complementary tectonic shifts in the automotive industry, including electrification, autonomous driving, and shared mobility. And, yes, Tesla is still effectively debt free, with over $18 billion of cash on its balance sheet, and investors are even speculating about a stock buyback, a far cry from worries of bankruptcy just a few years ago.”
You can also take a peek at the 11 Best TaaS Stocks To Invest In and 11 Best Penny Stocks To Buy.
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Disclosure. None. 12 Best Beaten Down Stocks to Buy Now is originally published on Insider Monkey.
