3 Top Beaten-Down Stocks to Buy in October

Tech stocks tend to be highfliers, but these three depressed companies look ready for long-term gains.

A little over a week into October, the market is giving value investors more opportunities than they may have seen in a while. Particularly in the tech sector, where IPOs that started off as market darlings have since fallen out of favor, there seem to be more than a few choices.

For a variety of reasons, Netflix (NASDAQ: NFLX), Roku (NASDAQ: ROKU), and Slack Technologies (NYSE: WORK) are down an average of 35% from their 52-week highs. Here’s why they are my top stocks to bounce back from the beating they’ve taken.

Streaming wars are causing a lack of faith

Other than a Goldman Sachs analyst who just reiterated his buy rating on Netflix, Wall Street is pretty pessimistic about the streaming leader’s earnings, due out next Wednesday. And even then, the Goldman analyst cut his price target 14% to $360 because of lowered expectations for profits and valuation among internet companies.

Because of growing competition in the streaming space from Disney, Apple, AT&T, and Comcast (NASDAQ: CMCSA), the market is being diluted, and Netflix will be hard-pressed to keep subscriber rolls growing.

Yet the plethora of choices that will soon arrive actually works in Netflix’s favor because a confused mind will often say no and stick with what’s familiar. It also doesn’t mean subscribers will abandon Netflix if they subscribe to another service. The streaming service actually has several levers it can pull to keep or attract subscribers, such as cutting prices, offering multiyear plans at a discount, creating a separate ad-supported tier, and more.

With Netflix stock down 27% from its recent highs, and a lot of pessimism going into its earnings report, this stock could be one to buy now.

A different streaming video play

Roku offers investors another opportunity to capitalize on a stock that is beaten down — in this case, because of an excessively negative outlook on its potential after Comcast announced it would offer free streaming boxes for its internet customers. Roku is the king of boxes and dongles, with a 39% share of the market versus around 30% for Amazon.com. If someone is now going to give away streaming devices, it will cut into Roku’s hardware business.

But Roku has been less about hardware these days and more about developing its platform to monetize it from ad revenue. While it may be approaching a saturation point with its plan to allow pop-up ads on its service — essentially an ad within an ad — the fear of competition may be overblown. Comcast’s free Flex box, for example, requires customers to also have its xFi Advanced Gateway modem to work, and they’ll have to cancel existing premium channels and repurchase them.

Roku is also branching out into new sound equipment, like its soundbar and subwoofer. It has also partnered with Walmart (NYSE: WMT) to sell those components under the retailer’s onn brand.

Roku has dropped 37% as those fears manifested themselves, but it should be able to overcome them, and any positive earnings surprise could catapult its shares higher.

Slacking off

Slack Technologies, the workplace collaboration platform, hasn’t had an easy go of it since its June direct listing. Its stock has tumbled 43% because, as with Netflix and Roku, investors are concerned about competition.

Microsoft (NASDAQ: MSFT) Teams — seen as potentially cutting into Slack’s client base — recently announced it had 13 million daily active users (DAUs). Slack, however, just announced its DAUs had jumped 20% sequentially, from 10 million to 12 million in September, and were up 37% year over year. It also had 6 million paid seats, or those who pay to use the service. Teams is available for free or at very low cost.

Analysts now believe Teams’ DAUs might not be of the same quality as Slack’s. CEO Stewart Butterfield told CNBC that the gains are simply because Microsoft users of Skype for Business have migrated over to Teams.

While Microsoft could be a potent competitor, Slack generates substantial engagement with its users, who perform 5 billion activities a week, such as texting or uploading a file. That will make the collaboration platform a sticky one, and as the market comes to realize it can hold its own, its depressed stock should rebound.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, Microsoft, Netflix, Roku, Slack Technologies, and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, and long January 2021 $85 calls on Microsoft. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

More on Tech Stocks

Happy shoppers look at a cellphone.
Tech Stocks

So You Own Shopify Stock: Is it Still a Good Investment?

Shopify (TSX:SHOP) stock has had a run, but there's still room to the upside.

Read more »

A person uses and AI chat bot
Tech Stocks

AI Where No One’s Looking: Seize Growth in These Canadian Stocks Before the Market Catches Up

Beyond flashy headlines about generative AI, these two Canadian AI stocks could deliver strong returns for investors who are willing…

Read more »

Data center servers IT workers
Tech Stocks

Better Buy: Shopify Stock or Constellation Software?

Let's dive into whether Shopify (TSX:SHOP) or Constellation Software (TSX:CSU) are the better options for growth investors in this current…

Read more »

nvidia headquarters with nvidia sign in front
Tech Stocks

Nvidia Just Delivered a Beat-and-Raise Quarter. There’s 1 Red Flag Investors Shouldn’t Ignore.

The chipmaker continued to benefit from robust demand for artificial intelligence (AI). But can it last?

Read more »

GettyImages-1473086836
Tech Stocks

Why Super Micro Computer Stock Is Soaring Today

The volatile stock is getting a boost from Nvidia.

Read more »

Snowflake logo in snowflake office on wall_snowflake-1
Tech Stocks

Here’s Why Snowflake Stock Skyrocketed Today

Shares of the data company are up 32% for the day.

Read more »

man touching magnifying glass button on floating search bar internet google search engine
Tech Stocks

Why Alphabet Stock Was Sliding Today

The parent company of Google is facing heat from U.S. regulators.

Read more »

chart reflected in eyeglass lenses
Tech Stocks

Top Canadian AI Stocks to Watch in 2025

Celestica (TSX:CLS) stock and another Canadian AI stock are worth watching closely this holiday season.

Read more »