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It's Time to Buy These 3 Beaten-Down Tech Stocks

It's never fun to see red in your portfolio, and watching a stock lose 15% or even 50% of its value is worse. Unfortunately, this is something that every investor will deal with eventually. And how you handle those situations matters a great deal. Will you panic sell? Or will you keep a level head?

There is no one-size-fits-all solution, but if you've done the research and you still feel confident in the company, those downturns are often a buying opportunity. With that in mind, we asked three Motley Fool contributors to write about beaten-down tech stocks that are poised for a turnaround. Keep reading to see why Appian (NASDAQ: APPN), Stitch Fix (NASDAQ: SFIX), and Verizon (NYSE: VZ) made the list.

Image source: Getty Images.

Democratizing software development

Trevor Jennewine (Appian): Microsoft CEO Satya Nadella once said, "Every company is a software company." This statement underscores the critical role that software plays in virtually every industry. However, it's difficult for businesses to differentiate themselves with out-of-the-box solutions, and software development is a complex and costly process. That's where Appian's low-code automation platform (LCAP) can help.

Specifically, Appian accelerates and democratizes software development. Rather than writing code, clients build AI-powered applications and automated workflows using drag-and-drop tools and flowcharts. For instance, consulting firm Entelgy uses Appian's platform to automate the billing process, deploying bots to audit invoices as they arrive. In fact, 98% of its invoices are now handled without human intervention, reducing the time to payment by 35%.

In short, Appian's technology drives efficiency, allowing employees to quickly build and deploy customized software. In fact, according to Forrester Research, Appian accelerates software development by 17 times, while cutting the costs in half. And the company backs that value proposition with The Appian Guarantee, a promise that anyone can learn to use its platform in just two weeks, and that any enterprise can deploy its first application in eight weeks.

Not surprisingly, Appian has seen consistent demand from clients, especially large enterprises, as they seek to keep pace with rapid changes in the business landscape.

Metric

Q2 2018 (TTM)

Q2 2021 (TTM)

CAGR

Revenue

$206.8 million

$330.8 million

17%

Data source: YCharts. TTM = trailing 12 months. CAGR = compound annual growth rate.

Looking ahead, Appian is well positioned to grow its business. Software is only becoming more important, and automation has the potential to make enterprises more productive. To that end, Appian recently acquired Lana Labs, a process mining company. This technology examines backend usage logs to identify business processes that can be automated.

That feature is a natural fit with Appian's platform, which currently focuses on software development and workflow automation. As CEO Matt Calkins explained, "Workflow is about doing ... process mining by contrast is about knowing; knowing and doing are natural complements."

Here's the bottom line: Appian's share price got ahead of itself earlier this year, and the stock has fallen 58% from its 52-week high. However, this founder-led company has established a rapport with customers, as evidenced by its 98% retention rate. And Appian's LCAP addresses a $37 billion market opportunity, a figure that should only get bigger in the years ahead. That's why this tech stock looks like a smart buy.

Image source: Getty Images.

Poised for a breakout

Jeremy Bowman (Stitch Fix): Stitch Fix has been a roller-coaster stock since its IPO in 2017. The personalized online styling service has no true peers on the market, and it's been a battleground between bulls and bears -- the former see the company as a disruptor in the $500 billion domestic apparel market, while the latter believe Stitch Fix's offering will never be more than a niche product.

However, now could be an excellent buying opportunity for investors. Stitch Fix is at an inflection point; new CEO Elizabeth Spaulding took the helm earlier the month, and the company launched its "direct buy" option to new customers, effectively expanding its addressable market to all clothing shoppers.

Meanwhile, Stitch Fix's stock price has recently pulled back. Shares are down nearly 40% from the pop after the company's June earnings report, when it smashed revenue estimates -- sales surged 44% to $536 million as the company lapped the lockdown quarter a year ago. There's no clear reason for the decline in the stock since then.

In addition to the strong third-quarter report and the direct buy launch, Stitch Fix also seems well positioned as a reopening stock, as Americans need to refresh their wardrobes as they return to the office and social events. In fact, in a recent earnings report, Levi's said that 35% of Americans changed waist sizes during the pandemic, and that should drive demand for new apparel.

Stitch Fix will report fourth-quarter earnings on Sept. 21, and a strong report could spark a turnaround. Spaulding already said in a recent CNBC interview that fiscal 2021 was a record for customer additions, a bullish sign for the fourth quarter. Analysts are expecting revenue growth of 23.6% to $547.9 million for the current quarter and a per-share loss of $0.13 when the company reports.

Image source: Getty Images.

Answering the call

Eric Volkman (Verizon): The tech sector has a plethora of hot segments. Big Telecom, alas, is not one of them. Investors love to get excited about potentially explosive growth stories from young and hungry players. They are rarely wowed by the slow-moving incumbents on top of the telecom food chain.

That sentiment has dampened the prices of the major companies in the segment, which boil down to Verizon, AT&T, and T-Mobile. Of the three, I think Verizon is the most underrated, while also having the greatest potential.

What's my reasoning? We're at the beginning of a massive 5G upgrade cycle, the next-generation wireless technology that has promised (for ages, it seems) blazing-fast internet connectivity for mobile devices. Verizon has arguably been the most aggressive and busy incumbent building out its 5G network. While Verizon 5G is more hype than reality these days, the company will eventually blanket much of America with the standard, which represents an immense leap in wireless connectivity.

Verizon users are getting the jump on this important technology relatively early. In its Q2 earnings release published last month, the company revealed that around 20% of its customers now possess 5G-compatible phones. This tells us two encouraging things. First, Verizon users like the idea of cutting-edge mobile technology and are willing to pay for it. Second, there's a long runway ahead of the company in the sale of such devices (and accessories, of course).

Verizon also doesn't get enough credit for being a good manager of its finances. Despite the huge spend necessary to establish and expand the 5G network, the company channels its strong cash flow into the right areas. For years it has prioritized its quarterly dividend, for which it spent less than $3 billion compared to total free cash flow of over $6.5 billion in Q2. At the moment, the company's payout yields 4.5%, well above the level of most blue chip dividend stocks.

So, with the excellent potential in 5G and a meaty dividend hanging on a stock that has been rather stagnant in price recently, Verizon is a worthy underdog these days.

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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Eric Volkman has no position in any of the stocks mentioned. Jeremy Bowman owns shares of Stitch Fix. Trevor Jennewine owns shares of Appian. The Motley Fool owns shares of and recommends Appian, Microsoft, and Stitch Fix. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.


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