2 Stocks Down 78% and 88% That Wall Street Is Overlooking — But I’m Not

Much of the stock market’s attention has focused on high-flying tech stocks lately, and for good reason. But some of the market’s best long-term opportunities may be in stocks that many Wall Street analysts and big investors overlook.

With that in mind, here are two stocks, down 78% and 88% respectively from their highs, that I own in the portfolio and could be incredible long-term bargains at their current prices.

New management and network effect

About a year ago, PayPal (PYPL -0.37%) replaced its CEO with the former intuit director Alex Chriss. But it didn’t stop there. It has completely overhauled its entire executive management team. Actually, Chriss is the newest member of the C-suite.

The aim is to revive growth in the massive payments company after several years of stagnant user base and lack of a clear growth strategy. And while it’s still relatively early in the new team’s tenure, progress so far has been impressive. In the second quarter, total payment volume increased 11% year-over-year, and due to a focus on efficiency, adjusted earnings per share increased 36%. The number of active accounts increased slightly sequentially, due to the lower customer rate.

I’m also excited to see how some of the company’s recent moves play out. Just to name a few examples so far, in September alone, PayPal recently announced an expansion of its partnership with Shopify for payments in the US, launched a large advertising campaign to promote the use of the PayPal Debit Mastercard and launched the expanded PayPal Everywhere rewards program.

Investors don’t have much faith in PayPal as the stock trades for around 15 times forward earnings despite a huge net cash position, over $5 billion in annual free cash flow and a very loyal user base .

Don’t ignore this social media stock

When most people hear the phrase “social media stocks,” they think of companies like Facebook’s parent company, Meta platformsand Pinterest. together (FEL 1.72%) it’s rarely even mentioned, and although one in three US households uses it, many investors don’t even know it’s a publicly traded company.

Nextdoor went public during the SPAC boom of 2021 and, like many companies that followed this path to the public markets, is down significantly from its initial stock price. But there are good reasons why you might want to keep this overlooked social media company on your radar.

Recently, Nextdoor co-founder Nirav Tolia returned as CEO and focused on efficiency and responsible growth, things that weren’t really the focus of the previous leadership. And even though he’s only been back in the role for about six months, we’re already seeing results.

Weekly active user growth, revenue growth and adjusted EBITDA margin growth accelerated in the second quarter. After several years of unimpressive performance, Nextdoor projects 11% year-over-year revenue growth for 2024, as well as an adjusted EBITDA loss that’s less than half of what it was in 2023.

In fact, management now expects the company to achieve positive free cash flow in the fourth quarter of 2024. With the business in the relatively early stages of monetization, over $450 million in debt-free cash (and a market cap of 862 million) and an aggressive share buyback program, Nextdoor could be a home run for patient investors if management can deliver profitable growth.

These are not low risk investments

Notice how I said PayPal could be a big winner if new management can figure out how to return the business to growth, and Nextdoor could be a home run if its profitable growth trajectory continues. The key word in both statements is “if”. There’s quite a bit of execution risk with both stocks, and I’d expect quite a bit of volatility over the next few years even if things go well. But from a risk-reward perspective, both look very interesting at their current valuations.