Why CoStar and Duolingo shares can recover
Shares in Duolingo have declined about 55% since this time last year.
Two U.S. stocks massively down in value this year have the potential for "significant growth," according to a major British investment management firm best known as a longtime investor in Elon Musk's companies.
Ben James, investment specialist for Baillie Gifford's U.S. equity growth strategy, told MarketWatch in an interview on Monday that there are companies "whose share prices have been punished significantly over the last year to 18 months," which the firm sees as still having "a significant growth opportunity" ahead.
He said CoStar Group, a provider of commercial real estate information, is one such example of a stock that has largely been dismissed by investors.
Shares in the Arlington, Va.-headquartered company $(CSGP)$ have declined almost 60% since the start of the year, bringing its price down to $27.66. The group's Homes.com strategy, which seeks to push CoStar into residential real estate to compete against names like Zillow, proved a disappointment to investors. By May, its declining market capitalization led to its removal from the Nasdaq-100 index NDX.
The 40-year-old company first moved into residential real estate when it acquired Apartments.com in 2014, and for James, the market is just taking its time adjusting to the change after profit margins were hit by the investments.
Baillie Gifford's U.S. growth trust, whose top holding is SpaceX (SPCX), has held shares in CoStar for more than a decade, James said.
He said they've "seen this playbook before" from CoStar, where it looks for a weak target to acquire and aggressively spends money on developments and linking its own proprietary data. That causes margins to drop, but the hope is the acquired company can soon be scaled to a point of high profitability.
"Growth is great actually, it's doing well, but the share price is really weak, and so there's a lot of negative sentiment," James said.
The company's revenue in its most recent quarter rose about 18% to $925 million and adjusted earnings per share nearly doubled to 32 cents.
James said Duolingo is another stock that has likely been affected by market pessimism. Shares in the online education platform (DUOL), predominantly known for its language-learning courses, are down about 55% since this time last year.
"They probably got over their skis in terms of monetizing the platform at the detriment to user experience, and they've reset the growth plan and pivoted back to focusing on user experience," he said.
If the Pittsburgh-Pa.-based company continues to improve user retention rates and engagement, that will to better growth, James said. "I use it for chess and I've got an 807-day streak with them," he said. "And the reason why I'm going on it is to maintain a streak with them."
"It's a fantastic platform and, you know - very sticky users - so there's something in that."
Overall, it's "such a strange time" for markets. "The market is more volatile than it's been for a long time," James said.
A company's stock can fall by about 20% in a day even if its financial earnings results marginally miss or even beat Wall Street's expectations, he said.
At a time when innovation and enterprise have never been quite so abundant, the companies that grow the most and the fastest still tend to outperform, according to James. "So that gives us great encouragement and being long-term in an environment like this is really hard because of the fast movements and the 24-hour news flow and just so much speed."
But amid this volatility, "it's probably more important than possibly ever before to really focus on that long term picture."
The markets
U.S. stock futures (ES00) (NQ00) slipped as the 30-year yield BX:TMUBMUSD30Y rose to its highest level since 2002. Bitcoin (BTCUSD) had a sudden plunge on Tuesday night, and then largely stayed at that level.
Key asset performance Last 5d 1m YTD 1y S&P 500 7815.6 1.89% 1.85% 14.17% 16.40% Nasdaq Composite 27,675.41 3.28% 4.75% 19.08% 21.45% 10-year Treasury 5.292 4.30 49.80 112.00 116.10 Gold 4194.1 -0.50% -4.68% -3.19% 4.65% Oil 87.94 -1.12% -6.69% 53.18% 41.75% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
The minutes of the last Federal Open Market Committee meeting are due at 2 p.m. Eastern, with the market now expecting the next interest-rate hike in December rather than in October.
The U.S. Treasury will auction $39 billion of 10-year notes.
Intel (INTC) stock rose 3%. Elon Musk said in a post on X that Taiwan Semiconductor Manufacturing Co. will do "nothing more" than sublease a part of the planned Terafab, as Intel CEO Lip-Bu Tan told Bloomberg it would continue working with the chipmaking project.
SpaceX (SPCX) plans to raise $40 billion in debt to buy Nvidia (NVDA) chips, according to the Financial Times.
Shares in Constellation Brands $(STZ)$ fell as the maker of Modelo beer reported a decline in what's called "depletions," the rate at which distributors sell its inventories.
Oil-tanker captains are being offered up to $100,000 per month to navigate through the Strait of Hormuz.
The chart
So what happened after the Trump administration introduced tariffs? According to the Dallas Federal Reserve, it didn't derail imports, it just changed where those imports were coming from. A Dallas Fed report notes U.S. imports on goods rose 4.5% last year, and Mexico, Vietnam, Taiwan and India picked up most of the trade that China left behind.
Top tickers
Here were the most active stock-market tickers as of 5 a.m. Eastern.
Ticker Security name NVDA Nvidia TSLA Tesla SPCX SpaceX MU Micron Technology GME GameStop TSM Taiwan Semiconductor Manufacturing Co. META Meta Platforms AAPL Apple AMZN Amazon.com MSFT Microsoft
-Nora Redmond