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

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

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

New management and a network effect

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

The goal is to reinvigorate growth in the massive payments company after a couple of years of stagnation in the user base and a lack of a clear growth strategy. And while it’s still relatively early in the new team’s tenure, the progress so far has been impressive. In the second quarter, total payment volume grew 11% year over year, and thanks to the focus on efficiency, adjusted earnings per share grew by 36%. The number of active accounts grew slightly sequentially, thanks to lower customer churn.

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

Investors aren’t putting a ton of faith in PayPal, as the stock trades for about 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 stock,” they think of companies like Facebook’s parent company, Meta Platforms, and Pinterest. Nextdoor (KIND 1.72%) rarely is even mentioned, and although one out of every three U.S. households uses it, many investors aren’t even aware it is a publicly traded company.

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

Recently, Nextdoor’s co-founder, Nirav Tolia, stepped back into the CEO role and has been laser-focused on efficiency and responsible growth, things that had not really been a focus of 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 all accelerated in the second quarter. After a few years of unimpressive performance, Nextdoor is projecting 11% year-over-year revenue growth for 2024, as well as an adjusted EBITDA loss that is less than half of 2023’s.

In fact, management now expects the company to reach positive free cash flow in the fourth quarter of 2024. With the business in the relatively early stages of monetization, over $450 million in cash with no debt (and an $862 million market cap), and an aggressive stock buyback program in place, Nextdoor could be a home run for patient investors if management can deliver profitable growth.

These aren’t low-risk investments

Notice how I said that 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 the profitable growth trajectory continues. The key word in both of those statements is “if.” There is quite a bit of execution risk with both of these stocks, and I’d expect quite a bit of volatility over the next few years, even if things are going well. But from a risk-reward perspective, both of these look very interesting at their current valuations.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Matt Frankel has positions in Nextdoor, PayPal, Pinterest, and Shopify. The Motley Fool has positions in and recommends Intuit, Meta Platforms, Nextdoor, PayPal, Pinterest, and Shopify. The Motley Fool recommends the following options: short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.