2 Beaten-Down Stocks That Could Make a Comeback in 2026

The piece argues The Trade Desk and PayPal are deeply discounted and positioned for a 2026 rebound: The Trade Desk, down roughly 70% in 2025, reported Q3 revenue up 18% year‑over‑year but suffered a revenue dip tied to a post‑political‑ad spending normalization and trades at under 18x next‑year earnings. PayPal, down ~30% YTD, has delivered high single‑digit top‑line growth, is trading around 10x next‑year earnings, and is deploying nearly all free cash flow to buybacks to accelerate diluted EPS growth — factors the author views as catalysts for outsized returns if growth stabilizes.

Analysis

Market structure: The selloff in TTD (-~70% YTD) and PYPL (~-30%) re-prices exposure to digital advertising and payments risk rather than fundamentals; winners include independent DSPs (TTD) and share-source buyers (existing PYPL holders) if ad budgets normalize — losers are high multiple ad/AI growth names if ad spend shifts to walled gardens (META, GOOGL, AMZN). Reduced equity demand for these names increases supply of float and raises implied volatility; expect elevated IV in TTD/PYPL into next 2–3 earnings cycles, and a modest risk‑off tilt that can bid US Treasuries (2–10y) if equities continue to derate.

Risk assessment: Tail risks include a regulatory shock (stricter ad targeting rules or payments regulation) that can cut EBITDA 10–30% for TTD/PYPL within 12–24 months, and a longer-than-expected migration of ad dollars to META/GOOGL that permanently compresses TTD multiples. Near-term (days–weeks) risks are sentiment-driven; short-term (1–6 months) hinge on Q4/Q1 revenue prints and buyback cadence; long-term (12–36 months) depends on political ad cycles (2026) and structural privacy changes (Apple/Europe). Hidden dependency: TTD's growth is levered to CTV/political cycles and to third-party measurement stability.

Trade implications: Establish small, staged exposure: TTD long via LEAPs or buy-and-average equity (start 1–2% portfolio, add to 2–3% if shares fall another 20% or on a quarter with >20% YoY revenue growth); PYPL core position 2–3% funded by selling 90–180 day 10–15% OTM cash‑secured puts to lower basis, or buy 12‑18 month call spreads to capture buyback-driven EPS expansion. Pair trade: long TTD vs short META (1:1 notional, start 1%/1%) to isolate DSP vs walled‑garden idiosyncrasy; use 20% stop-loss or close if spread compresses >15% in 3 months.

Contrarian angles: Consensus underweights cyclical political ad normalization and over-weights the risk of permanent displacement by walled gardens — a 70% drawdown in TTD prices likely reflects more than permanent share loss baked into price. PYPL’s 10x forward EPS already prices zero valuation multiple expansion; if buybacks consume >50–70% of FCF over next 12 months expect EPS-driven re-rating. Counterpoints: buybacks can fail to re-rate if revenue growth remains mid-single digits; regulatory or privacy shocks remain the biggest asymmetric downside.

Key Decisions for Investors

• Establish a staged long position in TTD: initiate 1% portfolio allocation now via Jan 2027 LEAP calls (target delta ~0.35) and add to 2–3% total if shares decline another 20% or if the next two quarters show sequential acceleration (revenue growth >18% YoY).
• Establish a 2–3% core position in PYPL funded by selling 90–180 day cash‑secured puts 10–15% OTM for additional yield; if assigned or bought outright, hedge with 12‑month 10% OTM protective puts or sell 1/3 covered calls to monetize buyback-driven EPS gains.
• Implement a pair trade: long TTD vs short META notional 1:1 sized at 1% of portfolio each to isolate DSP upside; close if spread tightens by >15% within 90 days or widen stop-loss to 20% absolute on either leg.
• Use volatility trades into earnings: buy 3–9 month call spreads on TTD and PYPL (25–40% OTM) to capture a rebound while capping premium; allocate no more than 0.5–1% of portfolio to each options trade and reassess post-earnings.