2 Beaten-Down Stocks With Massive Upside Potential

With broader equity markets near all-time highs, looking for beaten-down stocks with attractive long-term upside potential seems like a great strategy. Here are two companies to consider: Rivian Automotive (NASDAQ:RIVN) and Robinhood Markets (NASDAQ:HOOD). Both are fairly innovative in their respective industries, and their shares have been volatile this year, declining meaningfully from their 52-week highs. However, if they can execute, Rivian and Robinhood could produce outstanding returns over the long run. Let me explain.

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1. Rivian Automotive

Rivian, an electric vehicle (EV) maker, has had a volatile year. The stock is currently down 29% from its 52-week high, with recent developments, such as the company's decision to increase funding by issuing new shares (thereby diluting existing shareholders), weighing on the stock. However, there are also reasons to be optimistic about Rivian's future. For instance, the company launched the R2 earlier this year. The R2 is a mass-market model with a much more approachable starting price than Rivian's previous EVs.

It is designed to compete directly with Tesla's (NASDAQ:TSLA) Model Y in the midsize SUV category. The Model Y has been the world's most popular car for three years, so if Rivian can make significant market-share gains in this niche with the R2, the company could see much-improved financial results.

But there is an arguably bigger opportunity for Rivian. The company signed an agreement with Uber Technologies (NYSE:UBER) to deliver up to 50,000 fully autonomous R2 models for the ride-hailing giant's robotaxi service.

In exchange, Uber will invest up to $1.25 billion in Rivian. Provided Rivian can improve its self-driving software enough to meet its end of the deal, the agreement could lead to significantly increased demand for its R2 from Uber and, perhaps, other corporations looking to get in on the robotaxi industry -- or who may need autonomous EVs for other purposes. There could be a large addressable market for Rivian's autonomous R2s.

If it can tap into this opportunity, it may deliver outstanding returns over the medium term. However, Rivian's prospects hinge on several things going just right, and a significant setback, perhaps with the company's efforts to improve its self-driving software, could sink the stock. Rivian may also fail to seriously challenge Tesla in the midsize SUV market, and, since it remains unprofitable, the recent dilutive round of financing highlights another potential risk investors should keep in mind.

With all that said, is Rivian stock a buy? The company does have plenty of upside potential, but it is also fairly risky. Those comfortable with significant volatility should consider the stock.

2. Robinhood Markets

Robinhood, a financial services specialist, has declined about 26% from its 52-week high. One reason behind the drop is weakness within Robinhood's cryptocurrency business, which accounts for a meaningful share of its revenue. In the second quarter, Robinhood's revenue grew by 32% year over year to $1.31 billion. Crypto-related revenue dropped 38% year over year to $100 million. Robinhood's exposure to the crypto market is one reason some investors are skeptical about its prospects. However, the company is doing a good job of diversifying away from this segment.

The core business is doing well, with growing assets under custody, an expanding pool of premium Gold subscribers, and net deposits also growing at a good clip. Although Robinhood became famous for pioneering commission-free trading and making stock and crypto investing accessible to more people through an easy-to-use, interactive app, it has evolved well beyond that and is now a full-fledged financial institution serving a wide range of customers.

Further, the company is making increasing headway in some promising areas. Robinhood is doubling down on prediction markets and contract trading. During the second quarter, the company's number of event contracts traded grew more than 10-fold to 13.6 billion. The great thing about Robinhood is that it is particularly popular among younger investors, and it could build a competitive advantage through switching costs as its customers put more money across various products and services -- including retirement accounts -- on the platform.

Given its popularity among younger people and considering that people typically reach their peak earnings in their mid-40s to mid-50s, Robinhood could see these young investors opt for more of its financial services as their wealth increases, which could boost revenue and earnings over the long run. There are also meaningful risks, including the crypto market’s volatility and the evolving regulatory environment in prediction markets. If Robinhood can overcome these obstacles and attract more customers to its platform, the stock could deliver outstanding returns.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.