2 Growth Stocks Down Over 75% to Buy for the Long Run | Ezine Daddy

The real estate market has been red hot over the past 12 months. According to the Case-Shiller Index, house prices have risen more than 19% in the past year and are currently at an all-time high.

But interest rates have started ticking higher and the Federal Reserve has announced its intention to take a more aggressive approach to tackling the high inflation that is putting pressure on consumers. As a result, investors have sold off the shares of some companies involved in real estate, as higher interest rates could lead to lower house prices.

But names like redfin (RDFN -1.97%) and offer block (OPAD -3.62%) appear to be oversold and for investors with a five to 10 year time horizon, this decline could present a major opportunity.

Image source: Getty Images.

1. Redfin

Selling a home is rarely an easy process. It can involve months of marketing, showings and negotiations, which is why most sellers turn to professional real estate agents to take care of everything. Redfin has built an army of more than 2,485 brokers across America and has reached a scale that allows it to significantly undercut the fees charged by smaller independent brokers who typically specialize in narrow geographic areas.

While the industry average listing fee is about 2.5%, Redfin charges just 1% and has saved consumers over $1 billion in real estate fees since the company was founded. Through the use of technology, Redfin agents are far more productive, completing 2.6X more transactions than the industry average.

The result is an impressive slice of the massive housing market: In 2021, Redfin was responsible for 1.16% of all U.S. home sales by value

The company also operates an iBuying segment, RedfinNow, in which it buys homes directly from sellers to sell at a profit. It’s a tough business that resulted in huge losses for its main competitor Zillow group (z -1.82%) (ZG -2.13%), although Redfin has taken a more conservative approach and has so far avoided the same financial struggles. However, if higher interest rates trigger a drop in home prices, the practice could pose significant risks for Redfin.

The combination of Redfin’s brokerage and direct buy segments has generated incredibly strong growth over the past several years. Revenue has grown at a compound annual growth rate of 48% since 2016 to $1.92 billion in 2021. Analysts are expecting further strength in 2022, even in the face of a potentially weaker real estate market, with sales expected to top $2.7 billion.

Redfin is a forward-thinking real estate company. With the stock down 86% from its all-time high of around $75, now is a great opportunity to buy and hold for the long term. If today’s economic volatility calms down and fears of rate hikes subside, Redfin’s performance could even accelerate.

2. Offer block

Offerpad is an iBuying specialist. Unlike Redfin, the company doesn’t have a brokerage segment and is solely focused on buying homes from sellers, renovating them, and — ideally — selling them for a profit. Offerpad is very selective when it comes to home buying, which has helped avoid the fate of other players like Zillow.

In fact, Offerpad operates in just 21 markets in the US, far fewer than the 35 regions where Zillow operated at the height of its iBuying dominance. To mitigate risk even further, Offerpad adheres to a strict renovation plan that aims to repair and sell properties within 100 days of purchase. This reduces the likelihood that Offerpad’s housing inventory will be adversely affected by price fluctuations in the broader market.

This selective approach resulted in a record gross profit of over $207 million in 2021. It’s a stellar result compared to Redfin, which was effectively balanced in its iBuying segment for the year, and Zillow, which suffered a loss and exited the practice altogether.

Those gains were driven by rapid revenue growth compared to 2020. To top off an already successful year, Offerpad managed to turn a profit.

Metric

2021

2020

growth

revenue

$2.07 billion

$1.06 billion

95%

Earnings (loss) per share

$0.05

($0.40)

N / A

Source: Offerpad.

The company doesn’t seem to be slowing down, forecasting revenue of $1.1 billion for the first quarter of 2022. Analysts are estimating that revenue will surpass $5 billion in 2022, which would represent a growth rate of 143% compared to 2021 – a significant acceleration.

Offerpad shares are down 77% since hitting an all-time high of $13.63 in September 2021. Rising interest rates and the broader tech sell-off have presented investors with an opportunity to buy this company at a deep discount that could set them up for high, long-term gains.

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