With the S&P500 And Nasdaq Composite As they hover near their all-time highs, many investors may be reluctant to add new stocks to their portfolios. After all, Warren Buffett told investors to “be fearful when others are greedy, and greedy when others are fearful,” and a lot of greed is driving many stocks to historically high valuations.
But if you look a little closer, you can still find some bargain stocks trading at discounts to their growth potential. Let’s look at why three of those stocks — Lumen technologies (NYSE: LUMN), Applied materials (NASDAQ: AMAT)And Opendoor technologies (NASDAQ: OPEN) – could be a lot higher in the coming years.
Lumen, the telecom company once known as CenturyLink, was in serious trouble in early 2024. Sales had fallen for five years in a row, it had become unprofitable in the past two years and the dividend was suspended in 2022. flows turned negative and ended the last quarter with $18.1 billion in long-term debt.
Unlike many other telecom companies, Lumen did not expand into the wireless market to reduce its exposure to the slow-growing mobile market. Instead, it expanded its landline business, introduced new fiber plans and bundled more cloud, security and collaboration services into its enterprise-focused plans.
Lumen had expected to generate slow but steady growth with enough cash to cover dividends. Unfortunately, the rapid deterioration of the fixed line business segment offset stronger growth in the consumer-facing fiber business.
As a result, Lumen stock fell below $1 in June. However, its stock price rose back to around $6 over the past six months after it struck a series of AI connectivity deals, including one with Microsoft‘s Azure – to upgrade their data centers for the latest AI applications. The company has raked in $8.5 billion from these deals to date, and those tailwinds could revive mobile’s struggling business segment in the coming years.
Lumen is not out of the woods yet. However, with an enterprise value of $22.8 billion, it trades at less than twice this year’s sales. If it gets its act together, its stock could rise in the coming years as the AI market grows.
Applied Materials is one of the world’s leading suppliers of semiconductor manufacturing equipment. It serves a wide range of customers in the foundry, logic and memory chip markets.
Growth accelerated during the pandemic as the largest chip makers expanded capacity to cope with supply chain disruptions and chip shortages, but cooled over the past three years as the growth spurt was broken, faced with macro challenges and imposed stricter export restrictions against China.
Applied Materials’ revenue and adjusted earnings per share rose just 2% and 7%, respectively, in fiscal 2024 (which ended in October). However, analysts expect revenue and adjusted earnings per share to grow 9% and 10%, respectively, in fiscal 2025, as growing demand for AI chips, more energy-efficient chips and denser memory chips again generate strong tailwinds for the semiconductor equipment sector. Those are robust growth numbers for a stock that trades at just 17 times forward earnings.
Applied Materials’ valuations are under pressure due to concerns about its dependence on China, which accounted for 37% of revenue in fiscal 2024. The US Department of Justice (DOJ) has been scrutinizing the China sales and its request for CHIPS Act funding (for a new $4 billion R&D facility) was reportedly denied based on those connections.
Investors should keep an eye on these developments, but Applied Materials has weathered many macro and regulatory headwinds before. If you expect the company to overcome these latest challenges, now could be a good time to add to its stock.
Opendoor is the largest ‘iBuyer’ of homes in America. It makes instant cash offers on homes, fixes them and relists them on its own marketplace. That digital approach streamlines the sales process for sellers and buyers, but it is a capital-intensive approach that only thrives in a warm housing market with low interest rates. The AI-driven algorithms can also misprice the purchased properties at times.
The company’s growth accelerated significantly in 2021 as headwinds from the pandemic dissipated and the housing market heated up. That momentum continued until 2022, but rising costs for the renovation of the buildings put pressure on margins.
However, over the next two years, rising interest rates cooled the housing market, while the costs of buying and renovating new properties increased. That pressure drove both Zillow And Redfin to exit the iBuying market in 2022. Sales fell by 55% in 2023 and analysts expect a further decline of 27% this year. It is also expected to remain unprofitable for the foreseeable future.
Those numbers seem bleak, but Opendoor’s prospects should improve as interest rates fall and the housing market warms up again. With its biggest competitors out of the race, it could easily dominate the iBuying market and attract more buyers and sellers. That’s why analysts expect sales to rise 22% in 2025 and 29% in 2026. At less than 1x this year’s revenue, Opendoor shares could move higher once near-term headwinds dissipate.
Consider the following before purchasing shares in Lumen Technologies:
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Applied Materials, Microsoft, and Zillow Group. The Motley Fool recommends Opendoor Technologies and Redfin and recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $10 calls on Redfin, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
3 Top Bargains Ready for a Bull Run was originally published by The Motley Fool
