Nasdaq Sell-Off: 3 Growth Stocks You’ll Regret Not Buying on the Dip

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Tech stocks have been crushed in 2022, but opportunities are beginning to present themselves.

The Nasdaq-100 stock market index, which represents the technology sector, has officially entered a bear market. It's lost 26% of its value since hitting its all-time high in November 2021, but there are several individual tech stocks that are beginning to look highly attractive.

Three Motley Fool contributors think Tesla (TSLA 1.12%)PubMatic (PUBM 0.88%), and Upstart Holdings (UPST 4.84%) are oversold, and represent great long-term value at their current prices. Here's why investors might regret missing this chance to buy when they look back a few years from now.

 A blue Tesla car driving on an open road.

IMAGE SOURCE: TESLA.

Leading the electric vehicle industry

Anthony Di Pizio (Tesla): Electric vehicles (EVs) might be a minority of global new car sales right now, but investing is about the future. By 2050, some estimates suggest 60% of all cars sold will be electric, and that trend could accelerate from here given some countries have proposed to ban the sale of internal combustion vehicles as soon as 2035. That's one reason owning Tesla makes sense — it's leading the EV industry forward, and with the stock down 38% from its all-time high, this could be the opportunity investors have been waiting for. 

Tesla announced its first-quarter 2022 earnings results late last month, and they revealed significant growth in most key metrics. Vehicle deliveries grew, but they were a soft spot because of supply shortages of critical components like semiconductors. Still, the company managed to deliver 310,048 cars in the quarter, which was its highest-ever result. 

Revenue jumped a substantial 87% to $16.8 billion compared to the year-ago quarter, and it helped Tesla make further gains in its gross profit margin. The company has received praise even from one of its most fierce competitors, Volkswagen Group, for its industry-leading manufacturing technology that offers unprecedented efficiency. As Tesla produces more cars, its gross margin expands — a phenomenon known as achieving scale. In Q1 2022, its automotive gross margin hit a record 32.9%, up from 24.1% a year ago. 

It drove the company to $2.86 in earnings per share in the quarter, a whopping 633% year-over-year increase. It could get even better for the full year, with analysts expecting record-high earnings of $12.32 per share. But investors should play the long game with Tesla, especially considering its other business units like residential solar power generation and battery storage, which could take off significantly as the technology becomes more affordable.

Tesla recently hinted at plans to split its stock, which adds no value to the underlying company but could attract more investors. That's another potential positive to look out for. 


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One of the best values on the market today

Jamie Louko (PubMatic): Lots of tech stocks are plummeting, which is bringing many bargains to the investors focused on this space. PubMatic looks like one of those bargains right now, trading at 20 times free cash flow and 19 times earnings, despite having huge potential over the next decade. 

PubMatic has seen stellar performance in the advertising technology space. It operates on the sell side, meaning that it helps publishers make the most money on their open ad inventory. PubMatic is not the leader in the space, but it is a close second to Magnite

Because of this position, PubMatic has seen tremendous adoption as digital advertising has become more popular. It processed over 32.6 trillion impressions in Q1 — which increased 76% year over year — while decreasing its cost of revenue per million impressions by 50% since Q1 2020. This has allowed the company to achieve impressive income margins while expanding revenue quickly. Revenue in Q1 2022 jumped 25% year over year to nearly $55 million, and net income also reached $5 million, representing 9% of revenue. 

This shows that the company has the best of both worlds: It can continue growing, yet it also has the profitability of a mature business. This advantage could allow it to reinvest heavily into the business in the future to help PubMatic take the leading position on the sell side of the industry.

There is a lot of room for PubMatic to continue expanding. The company believes global digital advertising spending could grow from $514 billion in 2022 to $627 billion by 2024. Considering the company had roughly 3% to 4% market share at the end of 2021, there is an immense opportunity to explode higher from here. With the company's consistent and robust profitability, along with this massive potential, PubMatic looks like a strong company to own for the next decade. And at the prices it trades at right now, you could get this company for a steal.A digital face appearing among computer code and a digital background.

IMAGE SOURCE: GETTY IMAGES.

Disrupting the lending industry

Trevor Jennewine (Upstart Holdings): Upstart is on a mission to make the lending industry more efficient. Today, banks and credit unions make lending decisions based on limited information. The FICO score is the heart of most credit models, but that three-digit figure is calculated from no more than 20 variables. That means banks often lend money without truly understanding the risk, which leads to inefficiencies. That's where Upstart can make a difference.

Its platform leans on big data and artificial intelligence (AI) to help banks quantify risk more precisely. Its technology creates value on both sides of the equation. Consumers benefit from higher approval rates, and lenders benefit from lower fraud and loss rates. In fact, the results on an internal study suggest that Upstart can reduce defaults by nearly 75% compared to traditional underwriting. Moreover, each time a borrower makes or misses a payment, Upstart's AI gets a little smarter.

Of course, banks that see fewer defaults have the flexibility to approve more borrowers, offer lower interest rates, or a combination of the two. That value proposition has Upstart growing like wildfire. The number of lenders on its platform tripled over the past year. In turn, revenue climbed 156% to $310 million in the first quarter, and earnings skyrocketed 209% to $0.34 per diluted share.

On a less optimistic note, management cut full-year revenue guidance to $1.25 billion — which implies 47% growth in 2022 — citing the difficult macroeconomic environment. Demand for loans will dip as interest rates rise, and more borrowers could miss payments as high inflation drains disposable income. For those reasons, investors should monitor the performance of Upstart-powered loans. Any lasting underperformance would be bad news for the business.

On the bright side, Upstart has delivered impressive results thus far. In the last four years, its AI has consistently been more accurate than traditional underwriting models. If that trend holds through a period of high inflation and rising rates, it would validate its business model and solidify Upstart's value in the eyes of lenders. To that end, it would likely supercharge Upstart's growth trajectory in the multi-trillion-dollar lending industry. And with shares trading at a reasonable 4.3 times sales, now looks like a good time to start a position this beaten-down growth stock.

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