The Etsy website.
Shares have risen for the past few days, with the Dow Jones Industrial Average hitting its second-highest closing price on Monday, but not every company is breaking records.
In recent months, investors have pulled back from expensive growth stocks to favor cyclical stocks, with many soaring growth names taking a hit. At the close of trading on Friday when the S&P 500 hit a record high at 30 The index’s stocks were down at least 20% from their 52-week high, Most of them in technology, healthcare, and communications. For the most part, stocks fell for a good reason: Their valuations rose so much that the fundamentals of the stocks no longer justified them.
This appears to be the case
(Ticker: MORE) and
(DISCA), both of which recently launched individual streaming services. Investors were delighted with the media companies’ ambitious subscription targets and other good prospects – and stocks of both companies were in turmoil from March 2020 to March 2021.
However, as stock valuations got higher and fewer investors were willing to pursue them, share prices fell in late March this year. Despite the recent decline, Viacom and Discovery stocks are trading at higher valuations than they were a year ago, suggesting further decline.
Barron was looking for the opposite: ailing stocks whose valuations have now fallen below last year’s levels, suggesting a better chance for a rebound. We narrowed the screen by excluding companies whose profits for 2022 are expected to be lower than 2021 – a potential red flag for stocks that run ahead of themselves.
This left us with 10 names that are good candidates to buy from the low level.
(ETSY): The online arts and crafts market rose 316% in the twelve months leading up to its most recent peak on March 1, as both consumers and sellers rose during the pandemic lockdowns. The stock has lost a third of those gains since March 2021 after the company pointed to solid but less dramatic growth in the years to come. Wall Street estimates that Etsy will grow earnings per share by 20% year over year in fiscal 2021 and an additional 22% in fiscal 2022.
Likewise shares of chip manufacturers
modern micro devices
(AMD) have fallen since the peak in January. In April, AMD raised its guidance for the full year as a global semiconductor shortage weighed heavily on the chip supply chain. The company is now forecasting revenue growth of around 50% from 2020, while earnings are expected to grow 66%.
From a review point of view, both Etsy and AMD are now more attractive than they were a year ago.
Penn National Gaming
Jack Henry & Associates
(DXCM) round off the stocks contained on the screen.
Make no mistake, some of these stocks are still quite expensive in the traditional valuation sense. They just look “cheap” compared to their own past – which some might consider a more relevant way of predicting a stock’s future.
For example, stocks of DexCom, which manufactures and markets continuous glucose monitoring systems for diabetic patients, are valued at 137 times their estimated earnings over the next 12 months. However, investors today are no longer just focusing on a company’s one-year prospects. The stock is well positioned to see exponential growth as a technology for Dexcom’s products over the next five years becomes more mainstream. Wall Street analysts are largely optimistic about Dexcom stock and have an average price target that is 30% above today’s level.
Write to Evie Liu at [email protected]