Tech Sell-Off: 2 Growth Stocks Near 52-Week Lows To Buy Now

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2022 has already been a tough year for the stock market. Impending interest rate hikes in the United States, coupled with geopolitical tensions, prompted investors to pull out of growth stocks in droves. Many tech giants facing company-specific headwinds fell even harder than the broader market.

But amid all this volatility, investors can find battered stocks that have the potential to rebound and deliver market-shattering returns over the long term. Let’s take a look at two such stocks that are near their 52-week lows: PayPal (NASDAQ: PYPL) and Chegg (NYSE: CHGG).

PYPL data by YCharts.

1.Paypal

PayPal’s value has nearly halved since the start of the year – a terrible performance by any measure. While it felt the pressure before it even released its fourth-quarter earnings report, the company’s financial results exacerbated the rout. PayPal underperformed as expected by investors and analysts on several fronts, and the company’s forecast was weak.

A key metric that spooked investors was the company’s net new active accounts (NAA). In fiscal 2021, PayPal recorded 48.9 million NNAs and ended the year with 426 million active accounts, representing 13% year-over-year (YOY) growth. However, in its third quarter earnings report, PayPal had forecast NNA 55 million for the year, so it fell short of its projections by a fairly wide margin.

To make matters worse, of the 9.8 million ANI in the fourth quarter, about 3.2 million came from its acquisition of buy-it-now and pay-later company Paidy. This $2.7 billion cash transaction closed in October.

Cashier accepting digital payment from customer.

Image source: Getty Images.

But things are looking up, starting with this acquisition of Paidy. The trend to buy now and pay later is gaining momentum. As the name suggests, consumers can purchase items and pay for them later, often without interest. Paidy is headquartered in Japan, the world’s third largest e-commerce market.

This acquisition will help PayPal access this lucrative opportunity. Meanwhile, the company’s Venmo has started a partnership with Amazon this year and allows Venmo users to pay for goods on the main US website or the online retailer’s shopping app. PayPal’s long-term goal is to enter into similar partnerships with many other companies and remain a leading digital wallet.

The fintech industry will continue to grow at a good pace. PayPal estimated its addressable market to be $110 trillion. While PayPal won’t capture all this pie on its own, it will almost certainly continue to grow in its industry. After falling so much this year, PayPal looks like a great stock to buy.

2. Chegg

Shares of Chegg have fallen significantly over the past year as it became clear that the learning platform’s pandemic tailwind was coming to an end. The company’s fourth quarter results were not impressive, which management had anticipated. Chegg’s revenue was $207.5 million in the fourth quarter, a meager 1% increase from the year-ago quarter.

The company’s net profit was $24.3 million, down from the $26 million profit recorded in the year-ago period. Chegg Services – its subscription segment which accounts for the bulk of its revenue – posted revenue of $187.2 million, up 6% from a year ago. Chegg Services subscribers totaled 7.8 million at the end of the year, an increase of 18% year-on-year.

Chegg was already going to face tough YOY comparisons last year as his services were in such demand in 2020. Even so, there are two reasons why Chegg is set for a comeback. The first is the company’s competitive advantage: the network effect. Through its subscription service, Chegg offers textbook and homework solutions, usually prepared by subject matter experts.

The more students that join the platform, the more attractive it becomes to professionals looking to get paid to write solutions. On the other hand, the more solutions and subject matter experts there are on the platform, the more students will want to join. This is the characteristic of the network effect: the value of a service increases as more and more people use it.

Second, Chegg still enjoys a long growth streak. The company estimates a potential market opportunity of 100 million students worldwide who could benefit from its services. Currently, there is a tiny part of it. In the years to come, subscriber growth will do wonders for Chegg’s bottom line.

Although the near term may remain a bit uncertain for the company due to its recent financial missteps, patient investors will be rewarded later. This will be especially true if they jump on board now, given the company’s downfall over the past few months.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Prosper Junior Bakiny owns Amazon and PayPal Holdings. The Motley Fool owns and recommends Amazon and PayPal Holdings. The Motley Fool recommends Chegg. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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