Down more than 40%: These 2 'strong buy' stocks are trading at steep discounts

Buy cheap? Even in the stock market, buyers like to find a bargain. However, spotting a bargain can be tricky. There is a stigma attached to low stock prices based on the reality that most stocks do not fall for no reason. And these reasons are usually rooted in some aspect of the company’s poor performance.

However, you can still find stocks trading at deep discounts, stocks whose share price has been pushed down—perhaps by fundamentals, perhaps by market conditions, perhaps by plain bad luck—and those discounted prices are associated with some of the best potential upsides in the store.

Using TipRanks database, we’ve identified two stocks that are both underpriced right now—and have strong upside potential over the next year. Not to mention, they each receive a consensus “Strong Buy” rating from the analyst community. Let’s dive in and find out what’s driving this prospect.

Luminar Technologies (LAZR)

The first stock we’ll look at is Luminar Technologies, a Palo Alto-based Silicon Valley high-tech firm working in the autonomous vehicle segment. Luminar is a designer and manufacturer of Lidar systems, the most advanced sensor technology that acts as the “eyes” for self-driving cars. Luminar is involved in all levels of Lidar technology, from the semiconductor chips inside the hardware to the sensors, transceivers, receivers and electronics that make it all work.

Luminar went public through a SPAC merger in December 2020, during which time the company’s stock peaked above $40. Since then, however, the stock has fallen 77%. During that time, the company’s net loss also widened for five consecutive quarters. Revenue remained low, reflecting the company’s low sales as it positioned itself to supply an industry not yet ready for mass production.

It’s not all doom and gloom though. Luminar offers high potential for investors. For starters, Lidar is essential in autonomous vehicle technology – and Luminar’s systems are well-regarded. Additionally, the company’s revenue, while modest, is moving in the right direction; The top line for 2Q22, at $9.9 million, was up 45% quarter-over-quarter and 57% year-over-year – and beat estimates by 12%. EPS was reported at negative 18 cents, on a non-GAAP net loss of $65 million. Luminar managed to end the quarter with plenty of cash in the bank, $605.3 million as of June 30.

On another positive note for investors, Luminar raised its full-year 2022 revenue guidance from $40 million to a range of $40 million to $45 million.

Overall, Luminar shares are down 49% year-to-date. But the downturn hasn’t deterred Austin Russell, president and CEO of Luminar, from increasing his stake. Russell has made a series of purchases over the past two weeks, each for a six-figure sum. Combined, Russell has spent over $1.6 million on several blocks of LAZR, totaling 175,000 shares.

Deutsche Bank Analyst Emmanuel Rosner is also bullish on Luminar and its prospects, writing: “We are impressed with LAZR’s continued success in winning new business and growing the order book by +60% this year. The company also continues to form partnerships with leading OEMs and mobility providers, which should give it a clear path to scale to profitability and market expansion. We forecast revenues to be $44m/$133m in 2022-23E and then rise to >$385m by 2024E… We continue to believe that LAZR is one of the best-positioned LiDAR vendors to capture large business gains for L3+ autonomy in the near future – term.”

All of this has Rosner rating LAZR stock as Buy along with a $15 price target. This target expresses his confidence in LAZR’s ability to climb ~74% higher over the next year. (To watch Rosner’s record, Press here)

The Strong Buy analyst consensus rating for LAZR indicates that the Street broadly agrees with this bullish view. The 8 recent polls of analysts split 6 to 2 in favor of buys over holds, and the stock’s average price of $15 is practically the same as Rosner’s. (Check out the LAZR stock forecast at TipRanks)

AppLovin (APPENDIX)

Next, AppLovin is a software platform providing optimization tools for mobile app developers. The proliferation of mobile smart devices and their accompanying apps has opened up a huge opportunity for app creators – and they, in turn, form AppLovin’s customer base. In addition to app creation tools, AppLovin offers advertising, analytics, and publishing services.

Some numbers will tell the story. AppLovin has seen more than 4 billion downloads in the past 12 months and brought in $776 million in top-line revenue for the most recent 2Q22. That headline was up 16% year-over-year and included a whopping 118% year-over-year increase in software platform revenue, which made up $318 million of the total.

When it came to earnings, it was a different story. AppLovin reported a net loss of $22 million, compared to a profit of $14 million a year ago. The company faced severe headwinds in the mobile app industry, including reduced consumer spending and changes in general privacy policies that affected app discovery rates.

Investors are generally cautious and the stock is down 73% this year. However, AppLovin is attracting positive attention from Wall Street analysts, who see the low price as an attractive entry point.

Among the bulls is a 5-star analyst Youssef Squali, from Truist, who wrote: “The software segment was again the bright spot in 2Q22 as APP’s AXON ML engine continues to fuel its growth. This was offset by application revenue weakness impacted by weaker consumer demand/mktg cost optimization to increase margins while this segment remains under strategic review. This change in mix should lead to higher quality earnings/margins, which over time should help revalue the stock and increase shareholder value, in our view.”

To that end, Squali sets a Buy rating on APP and adds a $65 price target to it, which indicates room for a 12-month upside of 154%. (To watch Squali’s record, Press here)

The sentiment on the Street is as bullish as Truist’s view, with 13 positive analyst reviews giving a unanimous consensus rating of Strong Buy. The current trading price is $25.55 and the average target price of $60.38 suggests gains approaching 136% over a one-year horizon. (Check out AppLovin’s stock forecast at TipRanks)

To find good stock trading ideas at attractive valuations, visit TipRanks’ The best stocks to buya recently launched tool that brings together all of TipRanks equity insights.

Rebuttal: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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