2 beaten-down bargain stocks I’d buy for my investment portfolio

Last year was great for the e-commerce ecosystem. But investors have lost faith in some of these companies, making them bargain stocks according to this Fool. 

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Last year was a good one for the e-commerce ecosystem. During lockdowns, we ordered in like never before. Considering how long the pandemic lasted, it turned out to be an unexpected boom for the industry. Among the gainers from this trends were food delivery companies like Just Eat Takeaway (LSE: JET) and Deliveroo (LSE: ROO).

This was evident in Just Eat Takeaway’s share price, which touched all-time highs in July last year. But 2021 has not been so kind to these stocks. The Just Eat Takeaway share price is down by 36% from last year. Deliveroo was not publicly listed last year, but its debut at the stock markets earlier this year was as underwhelming as they come. 

So why am I talking about buying them now?

Unrealised value in delivery stocks

That is because I think there is a lot of potentially unrealised value in them, making them bargain stocks. The pandemic has accelerated the move towards digital shopping. And some of these gains are widely expected to be permanent. This is also evident in Deliveroo’s latest update. 

The company had initially expected gross transaction value (GTV), which is the sum of consumer spending through the app less discretionary tips, to grow by 30%-40% this year. This forecasted growth rate was lower than last year, on the expectation that we would be out and about once again this year. But spending so far has been so strong, that Deliveroo just increased its GTV growth forecast for the second time to 60%-70%.

Just Eat Takeaway has also reported a robust rise of 37% in GTV for the first nine months of the year compared to last year. In the third quarter its growth has slowed down, but even then it remains quite strong at 23%.

Expanding fast

Moreover, I really like how ambitious both companies are in growing their markets. Just Eat Takeaway for instance, was formed as a merger of the UK’s JustEat and the Dutch Takeaway.com. The combined entity then acquired Grubhub to grow its footprint in the US market. It has now acquired Slovakia’s Bistro.sk, which is a market leader there. 

Deliveroo for its part has tie-ups with supermarkets like Waitrose to deliver groceries. And has recently also entered into a partnership with Amazon Prime, which allows Prime customers free use of Deliveroo’s delivery service. This has already reaped good results for the company. 

What I’d do about these bargain stocks

Despite these developments, the companies remain firmly underpriced, in my view. I already talked about Just Eat Takeaway’s share price decline. Deliveroo, too, is now trading close to where it started when it first got listed. This is a competitive market, to be sure. And better terms for delivery riders has been a big issue to address too.

But they continue to address these challenges and grow at speed. I find that hard to ignore. In time, I have little doubt that they can start turning net profits too. I have bought Deliveroo shares, and am now planning to buy Just Eat Takeaway’s shares as well, while they are still beaten down bargain stocks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh owns shares of Deliveroo Holdings Plc. The Motley Fool UK has recommended Deliveroo Holdings Plc and Just Eat Takeaway.com N.V. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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