Three Stocks Down Over 50%

Looking for the best deals out there? Here are a few stocks worth taking a peak at.

Author

Cade Invests
June 29, 2022

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Quote

"The individual investor should act consistently as an investor and not as a speculator." - Ben Graham

Three Stocks On My Radar

At the end of last week, I posted a thread covering ten large cap stocks that are currently down over 50% this year.

Since you are a loyal subscriber, you get to see my favorites from that l

If you have been following me for a while you know that I am a huge fan of ETFs and index funds. Since I'm relatively young though (24), I do take some calculated risks with individual stocks I see opportunities in.

Stocks Are Hard

I don't like giving stock picks for several reasons. The first is that it isn't repeatable. Let's say you read this email and buy one of these stocks.

Over the next couple of years it makes you money. Then, thinking you have it figured out you pick another stock to invest in, but this one crashes to the floor. In the end, especially if you follow picks blindly, you will give your gains back to the market and likely more.

Second, the odds are stacked against you. A study of over 25,000 stocks from 1926-2016 showed that over 50% of them returned negative with the median return being just 5.2%.

I'm not trying to rain on the stock picking parade (because I do some myself) but just be honest with yourself and your performance.

Source: Why Do Most Stocks Underperform Their Index

That said, from the original list of ten, here are three I see the most potential in.

Please, do you own research. I'm probably not the next Warren Buffett (lets be honest here).

The Picks

PayPal

Background: PayPal is a financial technology company that focuses on online payments. Chances are you have used one of their most popular products, Venmo. Paypal is also used by a number of different businesses to capture online payments and send money from business to business.

My reason behind liking Paypal is that they are a proven business that generates real income and has a cash balance of over $75 billion. This gives PayPal a quick ratio of 1.2 (meaning they have more assets and cash than debt). The forward P/E is sitting at 15.27, just slightly higher than the S&P 500 average of 14.7.

It also has an expected 5-year earnings per share growth rate of 15%.

Block (Square)

Background: Similar to PayPal, Square or Block, is another fintech company specializing in both peer-to-peer and business-to-business payment technology. They own the main competitor to Venmo, Cash App (for hipsters I've heard), and are also branching into the "buy now, pay later" market with their purchase of Afterpay. Another one of their main products is the white-square cash register you often see in small businesses (looks like an iPad).

Recent numbers by Square have been somewhat rough. For the quarter ending March 31st, 2022, revenue was reported at $3.96 billion, a 21% decline from the covid peak of $5.05 billion.

They do have ample cash on hand with a quick ratio of 2.0 and are projected to grow EPS 13.6% annually over the next 5 years.

Note: Square and PayPal are seen as competitors. Since I'm an owner of Square I will likely be starting a position in PayPal as well.

I'd rather own both the big dogs than just one.

Facebook (Meta)

BOOMER ALERT!

When you think of Facebook you think of your grandpa arguing politics and five-minute videos that lower your brain cell count. Most forget that Facebook also owns many other platforms including Instagram, WhatsApp, and Oculus (what kids use in the metaverse).

This tech giant is currently down around 55% from its high of almost $380 per share. In 2021 Facebook used its 2.9 billion daily users to generate $118 billion in revenue. It's currently sitting at a 14.4 price-to-earnings ratio (P/E) which it hasn't traded at in nearly a decade.

They are also cash-heavy with a quick ratio of 2.8 and are projected to grow EPS around 7.5% annually over the next 5 years.

Facebook does have its work cut out for them with an updated privacy policy, new competitors (TikTok), and the challenges of capturing a growing e-commerce market.

Conclusion

Picking individual stocks is hard folks.

At the moment I have around 80% of my investments in broad market ETFs because I'm honest with myself about my odds of beating the market.

There is an opportunity in individual stocks, but they require more research and attention that an investor needs to be prepared for.

If you want to check out the other 7 stocks down over 50% this year here is the original thread.

Till next time, Cade

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Nothing in this email is intended to serve as financial advice. Do your own research. Thanks for reading, if you have any questions, comments, suggestions, etc. about the email send me a DM on twitter. See you soon!