2 growth stocks to buy at a discount

If you’re looking for stocks to sell in today’s market, despite the broader gains the major indexes have posted, many companies have responded in different ways. While stocks trading at a discount isn’t in itself a reason to hit the buy button, big companies are sometimes beaten down by investor sentiment and can present opportunities for the forward-thinking person.

Here are two stocks that are trading at a discount to consider for your portfolio in the near future.

1. DexCom

DexCom (DXCM 3.16%) shares recently tumbled after the company reported second-quarter earnings and provided guidance that wasn’t exactly what investors were hoping for. The diabetes medical device stock is now down about 40% since the start of this year, and a good portion of that decline has occurred in recent weeks. As always, however, a closer look at the numbers and what they actually mean is essential.

On the plus side, DexCom generated 15% year-over-year revenue growth in Q2 2024 from sales of its continuous glucose monitoring (CGM) devices to just over $1 billion. US revenue rose 19% year-over-year, while international revenue rose 7%. Gross profit totaled 62.4% of revenue, or $626.7 million, while GAAP net income rose 24% year-over-year to $143.5 million. The company also ended the three-month period with more than $3 billion in cash and investments on the balance sheet, and the revolving credit facility remained undrawn.

So what caused DexCom stock to fall so significantly after earnings? Well, the revenue growth rate has been solid, but has slowed down compared to the 20%+ growth it’s seen in recent quarters. Management also lowered DexCom’s full-year guidance, albeit by a slight amount. The company now predicts that 2024 revenue will fall to somewhere between $4 billion and $4.05 billion, instead of the previous estimate of $4.2 billion to $4.35 billion.

This new target range would represent an increase of 11% to 13% from the full year 2023. In Q2, DexCom’s growth in the durable medical equipment (DME) channel slowed. CEO Kevin Sayer noted that the growth of its partnerships with DME distributors has not performed according to management’s expectations. A notable factor cited here was the lack of planning time needed to onboard the wave of new sales representatives DexCom recently incorporated to build relationships with physicians.

However, management emphasized that growth in absolute customer additions remains robust. DexCom has released several new CGM devices in recent years. This includes its flagship system, the G7, which is the most covered by payers of any such device on the market and has the fastest warm-up time. US Q2 revenue per customer slowed more than management had anticipated, but this was not due to a lack of new customer onboarding. Instead, Sayer noted that rebate eligibility for the G7 CGM was three times faster than its predecessor, the G6. This is a factor that management had expected, but which occurred earlier than anticipated. Management was adamant that the effect of these cuts would be limited to the end of the year.

Another factor behind the slowdown in growth was that international sales were not quite what management expected. This is because DexCom achieved higher-than-expected penetration in certain core international markets for users with type 1 diabetes of its CGMs. Meanwhile, DexCom sees significant growth opportunity in the largely underpenetrated type 2 diabetes market, both internationally and domestically. Customer growth was also strong in its pharmacy business, which is part of DexCom’s strategy to expand its reach in type 2 diabetes and primary care.

While these are all factors for investors to watch, DexCom’s place in the world of diabetes care hasn’t suddenly evaporated. The company is one of the world’s leading manufacturers of CGMs, and the still-developing adoption of these devices for type 2 diabetics and even pre-diabetics provides a solid growth path here. The wild card is obviously the rise in popularity of GLP-1 drugs, but they don’t solve the problem of providing users with real-time information about blood glucose levels, which CGMs do. In any case, these products can go hand in hand.

There is no magic bullet with stock investing, and time will tell as to what effect these drugs will have on the growth prospects of all diabetes device makers, including DexCom. For now, however, the company remains in a solid financial position overall, is profitable and remains the market leader. And as I mentioned, some of the headwinds it faced last quarter came more from short-term headwinds than long-term headwinds. Investors with the right buy-and-hold horizon may still find opportunity with this healthcare stock and want to consider getting at least a few shares.

2. Opendoor technologies

Opendoor technologies (OPEN -0.56%) it is trading down about 60% from its position since the beginning of this year. The company has struggled significantly along with other real estate stocks given the relatively dismal state of interest rates. Historically, real estate is a cyclical business. When interest rates are high, home buyers are not only more reluctant to sell, but people also face a less favorable environment for purchasing a new home.

The Opendoor platform operates on a model that uses artificial intelligence (AI) to facilitate home listings, offers and sales. The company is also in a relatively early stage, having been founded only a decade ago. How does the business work? Well, through Opendoor, homeowners can sell their home directly to the platform. Opendoor then does the work of selling the home to a new buyer, eliminating the headache of dealing with open houses, concurrent mortgages, and other elements commonly associated with the home buying and selling process.

Customers can also choose to simply list their home on the platform, and if they don’t receive an acceptable offer, they can choose to accept a cash offer directly from Opendoor. Another product offering is its marketplace, which allows home sellers to interact directly with both retail and institutional buyers to facilitate transactions, instead of Opendoor taking ownership of the home.

Only a small segment of the real estate industry has adopted online technologies like AI. Note, while US residential real estate transactions accounted for $1.6 trillion in transaction volume in 2023, iBuyers like Opendoor captured less than 1% of that total.

With its proprietary platform and a significantly underpenetrated market, Opendoor can retain a long-term advantage with its broad product offering for customers. These include cash offers, fast and seamless listings, title insurance and escrow services, and more ways to buy and sell a home on the consumer’s own terms.

Opendoor is facing significant headwinds right now. The company makes most of its revenue from buying homes from owners and reselling them, so it’s no surprise that its balance sheet is struggling at a time when sales are down across the industry. The company is operating at a net loss, although it posted a gross profit of $129 million in the last quarter.

Management estimates that its total addressable market is in the $650 billion mark, a notable opportunity once the current inflationary situation eases. Opendoor exceeded its guidance for the quarter to purchase 4,500 homes and purchased 4,771 in total, a 78% increase year-on-year. Its sales of 4,078 homes in Q2 generated $1.5 billion in revenue in the three-month period.

While inflation has cooled a bit and interest rates are expected to eventually come down, the immediate future for any business in the real estate space is sure to be hectic. That said, for investors with a multi-year buy-and-hold horizon who like to keep real estate stocks in their portfolio, there are some notable reasons to consider a position in Opendoor while it’s trading at a discount.