The stock market hasn't been easy to navigate in 2022. A consistent stream of red ink has flowed from the major U.S. market indices thanks to rising interest rates and geopolitical tensions, which have forced investors to rethink their growth expectations.
The technology sector has been particularly hard hit, with the Nasdaq 100 index currently trading in a bear market, at a decline of 25% from its all-time high.
Wall Street has been busy slashing price targets on popular high-growth stocks, but in some cases, there are still lofty gains to be earned. These two picks could deliver big rewards for patient, long-term investors if analysts' predictions come to fruition.
1. Lemonade: Implied upside of 92%
Lemonade (NYSE: LMND) has a current market valuation of just $1.3 billion. It's a technology-driven insurance company, and despite its small stature, it's taking market share from the giants of the industry by completely transforming the customer experience.
Lemonade interacts with customers through a web-based artificial intelligence bot called Maya, which can provide an insurance quote in under 90 seconds. More importantly, Maya can approve and pay claims in three minutes or less without human intervention, which is in stark contrast to the slow, often painful process at traditional insurance companies.
But investors have soured on Lemonade because of its persistent net financial losses, sending its stock down 87% from its all-time high set back in early 2021. The company lost $241 million last year and followed that up with another $90 million loss in the first quarter of 2022. Partly to blame is Lemonade's recent transition into car insurance, its most ambitious pivot yet, after starting out in the renters, homeowners, pet, and life insurance segments.
Entering large, new markets is costly, and it will take time to build scale, but the car insurance opportunity could be worth $316 billion this year alone, so investors might think it's worthwhile giving Lemonade some time to make it work. Plus, Lemonade deserves credit for proving its ability to consistently attract customers and for growing its in-force premium, which is the value of the company's active policies. There's little reason to think it won't replicate its success in the car segment.
Analysts at one investment firm, JMP Securities, think Lemonade's stock price could soar to $40, which represents a 92% upside from where it trades today. But given where the stock has traded previously, and given JMP's previous price target was $95, the long-term prospects might be even more promising if Lemonade can execute in the car insurance segment and improve its bottom line.
2. Offerpad: Implied upside of 144%
Selling a house is a long, complicated process, but strong home prices over the last few years have made a technology-backed business model called iBuying very popular. It's where tech companies like Offerpad Solutions (NYSE: OPAD) buy homes directly from sellers, renovate them, and then try to flip them for a profit.
Why would someone sell their house to a tech company? Because the transaction is quick, all cash, and eliminates the need for months of marketing and open houses. Offerpad is different to Zillow Group, which was once the largest player in iBuying before crashing out of the segment with steep losses, because Offerpad is highly selective when making purchases.
It focuses on fewer geographic locations across the U.S. than Zillow did at its peak, and it aims to turn transactions around in less than 100 days from the date it makes a purchase. The latter point is important because home prices could easily soften from here with interest rates on the rise, and Offerpad will need to avoid holding thousands of homes in its inventory, which could potentially decrease in value before it has time to sell them.
The company has found success thus far. It generated $1.37 billion in revenue during the first quarter of 2022 alone, a jump of 384% year over year, which was accompanied by a tidy profit of $41 million, or $0.16 per share. The big result was thanks to the sale of 3,602 homes during the quarter -- but it acquired just 2,856 homes at the same time, shrinking its overall inventory by 746 homes. This could impact its revenue growth in coming quarters, but as mentioned, it might prove to be a great way to mitigate risk in the current economic environment.
Offerpad is in the process of expanding its business into more real estate services, which will diversify its revenue base. It now offers mortgages in nine U.S. states, and it also provides renovation services to sellers if they don't want to sell their home directly to Offerpad, while referring them to a local broker.
The real estate market might be difficult for the rest of 2022, but analysts at Wall Street investment bank JPMorgan Chase think Offerpad stock could soar by 144% to $11 per share. If the company can maintain its profitability this year in challenging times, that price target could certainly be on the table.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Anthony Di Pizio has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Lemonade, Inc., Offerpad Solutions Inc, Zillow Group (A shares), and Zillow Group (C shares). 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.