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2 Growth Stocks Down 65% to 77% That Could Soar in 2022, According to Wall Street

Despite the broad S&P 500 stock market index ending 2021 with a strong 28% gain, an end-of-year sell-off sent some technology stocks plunging. For investors, that presents some interesting opportunities -- though it's worth remembering that any stocks that lose more than half their value carry inherent risks.

Nonetheless, these two innovative companies might be the future of their respective industries, and top Wall Street analysts think they could more than double in 2022.

Image source: Getty Images.

1. Upstart Holdings: Down 65%

Upstart Holdings (NASDAQ: UPST) uses artificial intelligence to originate loans for its banking partners. The company believes the decades-old FICO scoring system fails to measure the creditworthiness of modern borrowers accurately. Hence, it designed an algorithm that assesses over 1,000 data points and is proven to reduce default risk by 75% for the same approval rate.

Upstart earns revenue through fees when it originates a loan for a bank, and also via the sale of its software, which institutions can plug into their own loan applications. It began in small, unsecured lending with personal loans, but it has just expanded into the significantly larger car financing market.

The company's new Upstart Auto Retail software doubles as a sales and loan origination platform, and the number of U.S. car dealerships that have adopted it has grown by 219% in the last 12 months to 291. As a result, Upstart has blown past all revenue expectations. Once it reports its fourth-quarter result for 2021, it's expected to have exceeded $806 million in revenue for the whole year -- far more than the $500 million it originally guided for.

That $806 million figure would be 245% more revenue than the company generated in 2020. And in 2022, it's expected to cross the $1.2 billion mark, but that might prove to be a conservative estimate based on the explosive growth of its vehicle lending segment.

Upstart's stock hit a high of $401 in October 2021 before collapsing by 65% to $133 amid the tech sell-off. But now, Wall Street investment bank Citigroup thinks the stock could rocket to $350, representing a 130% gain from here.

Image source: Getty Images.

2. Lemonade: Down 77%

Like Upstart, Lemonade (NYSE: LMND) is a fintech company leveraging artificial intelligence. Its focus is transforming the insurance industry by using technology to make the customer experience more tolerable. After all, few consumers enjoy dealing with traditional insurance companies, especially when it's time to make a claim.

Lemonade's artificial intelligence bot, Maya, can produce an estimate for a customer within 90 seconds, and when it comes to making a claim, payouts can be processed within three minutes. The company has focused on four primary areas of insurance -- renters, homeowners, pet, and life -- but it recently forayed into the much more lucrative car insurance market, its largest yet.

When relying on artificial intelligence to enter a new segment, the algorithm needs time to learn. In a deviation from its typical strategy, Lemonade opted to seek help entering the vehicle insurance market by acquiring Metromile, another AI-driven insurance broker with over 3 billion miles worth of data under its belt and licenses in 49 U.S. states, in November 2021. This will allow Lemonade to hit the ground running and save valuable time and money perfecting its algorithm to price risk appropriately.

Customers are flocking to Lemonade's products as a whole. At the end of the recent third quarter, the company had 1.36 million customers, a year-over-year increase of 44%. And if it meets analysts' revenue expectations, it will be delivering incredibly robust growth there, too.

Metric

2020

2021 (Estimate)

2022 (Estimate)

CAGR

Revenue

$94 million

$127 million

$215 million

51%

Data source: Lemonade, Yahoo! Finance. CAGR = compound annual growth rate.

Lemonade's stock might be down by 77%, but Wall Street firm Piper Sandler thinks it could climb back to $98, which would be a whopping 133% return from today's price of $42. It's not without risk, as the company is losing a significant amount of money and is expected to continue doing so.

But reforming the customer experience in the insurance business feels like low-hanging fruit, so if Lemonade can achieve scale, it's likely to be extremely successful in the future.

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Anthony Di Pizio has no position in any of the stocks mentioned. Citigroup is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool owns and recommends Lemonade, Inc. and Upstart Holdings, Inc. The Motley Fool has a disclosure policy.


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