1 Growth Stock Down 93% to Buy Right Now

Real estate stocks have been feeling the heat of high interest rates for a few years already, but many of them are on the rebound, including stocks like Home Depot and Lowe's, as well as many real estate investment trusts (REITs).

Many factors are influencing this trend. The main one is that the Federal Reserve cut its benchmark interest rate for the first time in four years, and there might be more cuts coming. The election of Donald Trump as president and the imminent arrival of his cabinet picks are others.

But not all real estate stocks have been feeling the love. Opendoor Technologies (NASDAQ: OPEN) stock remains down 93% from its highs, although the iBuyer jumped last week after Trump named key members of his economic team.

Opendoor has more direct exposure to the real estate market than the other stocks on this list. It buys and sells residential real estate -- a market segment where the impact of higher interest rates has had an incredibly strong impact. Homebuyers haven't been selling, and with relatively little inventory on the market, Opendoor has had a tough time.

But Opendoor could still end up being a long-term superstar.

The rebounding housing market

Opendoor's business can start to improve once the housing market starts to loosen up. After that, though, it will still have to prove itself as a business.

There are indications that a housing rebound is on the rise. In October, sales of existing homes increased 3.4% over September, according to Freddie Mac, beating The Wall Street Journal's estimate of 2.9%. They also rose 2.9% year over year, the first year-over-year monthly sales increase since July 2021.

Those positive trends reflected that mortgage interest rates had started to fall, but since then, they've begun creeping up again. There are more houses on the market, but now buyers aren't sure what to do. In other words, although it looks like there's going to be improvement, and there has been, it's not clear that the trend is going to continue.

However, neither the uncertainty nor the stagnancy of the market will go on indefinitely. Many would-be homebuyers and sellers are waiting, but they're not going to wait forever. The Federal Reserve is still planning to cut interest rates further, and when it does, that could finally unleash a more vigorous housing market.

Opendoor has massive opportunities

On the surface, Opendoor looks like it has incredible growth opportunities. However, it hasn't had much of a chance to exploit them while the operating environment in residential real estate is so difficult.

The company offers an alternative way for homeowners to sell their homes using digital technology and artificial intelligence. It aims to make selling and buying seamless, providing accurate quotes based on its machine-learning algorithms, and making quick cash offers to sellers. Real estate is in the process of being disrupted by the digital transition, and Opendoor is a major player.

Housing is one of the biggest markets there is, with a $1.9 trillion opportunity. Opendoor is one of the few remaining iBuyers now that Zillow and Redfin have closed down their rival businesses. As one of the last players standing, it has an even better chance to succeed.

Its revenues increased 41% year over year in the third quarter, gross profit increased from $96 million to $105 million, and net loss improved from $106 million to $78 million. It purchased 3,504 homes in the quarter, and the inventory balance was $2.1 billion, a 64% increase over last year. Investors are cautiously optimistic -- Opendoor stock is up by 16% over the past month.

Should every investor buy Opendoor stock?

Opendoor is well positioned to bounce back when the market is better, but there's a lot of uncertainty right now. It looks like it's financially stable and has the cash cushion to navigate through this rough period. But if the market's doldrums drag on too long, Opendoor's situation could become precarious. Its positive third-quarter report should somewhat allay investors' fears, but the market is still incredibly cautious.

I want to be crystal clear that this stock is a risky play, and it's not for the conservative investor. I only recommend it for investors who have a serious appetite for risk. If that fits your investing profile, you might want to take a bite at the current price. It's so low that you don't have to risk much for a payoff that could be huge.

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*Stock Advisor returns as of December 2, 2024

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot and Zillow Group. The Motley Fool recommends Lowe's Companies, Opendoor Technologies, and Redfin and recommends the following options: short February 2025 $10 calls on Redfin. The Motley Fool has a disclosure policy.