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The old saying that every dog has its day is particularly applicable on Wall Street. In this case, the dogs are reliable companies that have underperformed over a one-year period that then outperform over the next year.
In many instances, the opposite is also true; outperformers one year can be the next year’s underperforming dogs.
These ideas are rarely based in reality and more often merely reliant on the whims of the fickle herd of investors.
However, it may also be that an otherwise healthy company has simply had a difficult quarter or two and is then shunned by investors.
This market pattern can be very psychologically difficult for investors.
Everyone is hard-wired to go with winners and ignore losers even if they intellectually knowing better.
The key to beating the market is to locate underperforming stocks that are lower for no real, long-term reason and have compelling bullish reasons to move higher.
I particularly like to purchase underperformers after periods of overall growth in the entire stock market. With the major market indexes hitting all-time highs and bullish sentiment soaring, 2016 wrapped up to make 2017 an ideal proving ground for the “buy underperformers” investing maxim.
Here are three underperforming stocks poised for gains in 2017.
TripAdvisor (Nasdaq: TRIP)
Shares of the world’s largest online travel company have been hammered this year. After plunging 44% in 2016, the stock is currently trading in the deep value zone and is ripe for buying by savvy long-term investors.
TripAdvisor’s stated mission is to enable travelers to unleash the potential of every trip. The site offers trusted advice from real travelers combined with a wide variety of travel choices and planning features. Visitors are provided with seamless links to booking tools that check hundreds of websites to find the best hotel prices.
TripAdvisor-branded sites make up the largest travel community in the world, reaching 350 million average monthly unique visitors. Together, these sites offer 385 million reviews and opinions covering 6.6 million accommodations, restaurants, and attractions. The site operates in 48 markets worldwide.
Shares lost over 20% in November after the company posted disappointing results. Revenues climbed 1% to $421 million during the third quarter, providing for currency fluctuations. The company made it clear that the gains would have posted in the 3% zone if currencies were stable, but this was still not enough to stop the selling.
At the same time, however, adjusted profit posted at $0.53, representing the same value year-over-year and actually beating the consensus of $0.52. But this was still not able to stem the tide.
Bullishly, unique users were higher by 11% year-over-year and reviews exploded by 50% in the same timeframe.
The company recently added instant booking to its global clients via a strategic agreement with Expedia. TripAdvisor’s instant booking feature provides customers the ability to just click the “Book Now” button to create an instant hotel reservation, powered by the hotel or online travel agent. Both the transaction, as well as customer service, will be handled by the partner.
“Adding Expedia to the instant booking platform nicely complements TripAdvisor’s existing hotel inventory and helps users shop for a great deal on a hotel,” said Robin Ingle, senior vice president of global sales, TripAdvisor.
From a technical standpoint, the shares have bounced from a double bottom in the $46 per share zone, setting up a great buy opportunity.
Under Armour (NYSE: UA)
The company that made sports underwear a major retail trend has fallen on tough times. Shares of this nearly $13 billion market cap company were knocked lower by nearly 40% in 2016.
Bearish factors include a ticker change that may have confused investors, the CEO selling shares, and down-trending operating margins. The latter is due to the company being forced to lower prices and increase costs to maintain top-line revenue growth.
However, things are about to change in a bullish way.
First, remember that an executive can sell shares for any number of reasons. It is not necessarily a bearish sign. Secondly, a confusing ticker change is a short-term negative. Lastly, the lower operating margins can be remedied by ramping up sales and renegotiating supplier contracts.
In more bullish news, Under Armour just signed a partnership with Major League Baseball. A deal of this stature is near-guaranteed to increase visibility, and therefore sales, across product categories.
Also, not all financial results have been negative. During the third quarter of 2016, revenues increased 22% to $1.47 billion compared with $1.20 billion in third-quarter 2015. On a currency-neutral basis, net revenues increased 23% compared with the previous year’s period. Operating income increased 16% in the third quarter of 2016 to $199 million compared with the previous $171 million. Over the same period, net income increased 28% in the third quarter of 2016 to $128 and diluted earnings per share rose 26% to $0.29.
Technically, the selloff is tapering to create an ideal buy opportunity near the lows.
CVS Health (NYSE: CVS)
Shares of this drug store giant were knocked down nearly 20% over 2016. This is in spite of the company’s high performance over the last five years. Unlike the two previous stocks, shares of CVS are trading above their lows, having built a solid technical base in the $78.00 per share zone.
CVS boasts the first or second position in several product categories and a strong history of share buybacks and dividend hikes. In addition, the company has posted a 10% annual revenue growth over the last five years and 13% annual profit growth.
Worries about Donald Trump abolishing Obamacare have pressured the shares lower, but the odds of such a move severely affecting sales are low. In short, I like this company in the $78.00 per share zone.
Risks To Consider: There are always risks when investing in the stock market. Be confident to size your positions properly and always use stop loss orders.
Action To Take: Position in these underperformers of 2016 for a rebound in the new year.
– David Goodboy
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Source: Street Authority