The stock market has recovered some of its previous losses, but remains well off its 52-week highs. In the meantime, however, investors looking for bargains have a boatload of stocks to buy, as a number of undeserving companies remain 20%, 30% and even more from their respective highs.
They should be trading much higher. And sooner rather than later, they will be.
Today, we’re going to look at six stocks to buy that should be on the mend, as these companies have made vast improvements — or simply weren’t that bad to begin with — but that Wall Street has failed to recognize.
While these stocks could even fall a little lower in the short-term, each presents a high level of value that will be especially lucrative for any investor willing to deal with the volatility.
In no particular order, here are six stocks to buy now that have tremendous long-term upside at their current bargain-basement prices.
Stocks to Buy Now: XPO Logistics Inc (XPO)
XPO Logistics (XPO) stock has outperformed the market in 2016, with a 2% loss to beat the S&P 500’s 6% loss … though that could just be because the bears are tired out. XPO is off 40% over the past 12 months.
XPO is a growth company — one expected to triple revenues to $7.4 billion this fiscal year before doubling them again to $14.8 billion the next. XPO achieves this growth through acquisitions, cold starts and double-digit organic growth.
But growth isn’t the problem for XPO stock — at least not in sales. No, margins and profitability are the elusive items here. XPO sits at negative free cash flow of $106 million. However, that’s expected to change next year, with the company targeted to generate $300 million in FCF this year before pushing out $600 million in 2017.
XPO stock is trading at just 6 times next year’s FCF — too cheap for a company growing so fast. Heck, XPO could double over the next year and still be relatively cheap.
Stocks to Buy Now: Restoration Hardware Holdings Inc (RH)
Restoration Hardware (RH) is the home improvement retailer for the wealthy. It is in the middle of a huge transformation that includes vertical and horizontal expansion.
For 2016, management expects growth of 20%, which will add to its 16% growth in 2015 and 20% growth in the year before that.
Yet, RH stock has been cut in half from its peak, and is now valued at just $2 billion. This is a company that foresees $5 billion in peak North American revenue and a mid-teen operating margin, which means it trades at less than 3 times peak North American operating income.
Like XPO, that is just too cheap for a company with such rapid growth.
Stocks to But Now: Fitbit Inc (FIT)
Fitbit (FIT) stock is not a popular choice for retail investors right now, not while it’s mired in a 55% crash since Jan. 1 and creating new post-IPO lows.
But investors need to think long and hard about both how the company is performing, and the odds that Fitbit has had to overcome over the last year.
First, FIT stock is crashing in response to a fourth quarter where revenue surged 92%, first-quarter guidance implies growth of 28%, and full-year guidance implies growth of 35% in 2016. This is rapid growth, and makes FIT stock look very attractive at just 12 times this year’s expected EPS.
Furthermore, Fitbit’s Alta and its smartwatch Blaze remain atop Amazon.com’s (AMZN) bestselling list in their respective categories, and impressively, this has helped Fitbit gain a comfortable lead in the wearables space. Fitbit is the dominant wearables company, having thrived despite the Apple (AAPL) Watch launch last year, and new product arrivals from Alphabet’s (GOOG, GOOGL) Android Wear.
While FIT stock is significantly pressured, the long-term trajectory looks great for both the company and its stock.
Stocks to Buy Now: Celldex Therapeutics, Inc. (CLDX)
Perhaps the most confusing price action of the past six months comes from Celldex Therapeutics (CLDX) stock. There really is no explanation for the extent of its losses over the past year (roughly 75%).
Investors are worried that Phase 3 data evaluating its brain cancer drug Rintega will come back insignificant or that the data won’t be good enough to stop the trial early and pursue an FDA approval. Given that data will be released any day, those fears have crippled CLDX stock.
But the good news is that a Phase 3 failure is now fully baked into the stock, so any surprise will result in enormous stock gains.
Two things to keep in mind:
First, Rintega was already proven statistically significant in treating brain cancer patients with recurrent forms of the disease. This is a very sick patient population that responds to no other treatment. Yet Rintega worked! The ongoing Phase 3 trial is to treat the larger, newly diagnosed indication — a healthier patient population. In theory, if Rintega worked to treat the sickest of brain cancer patients, it seems logical that it will treat those who are healthier.
Second, CLDX stock jumped from $2.60 in early 2012 to $35-plus in mid-2013. These gains were unrelated to Rintega. The gains were a response to another late-stage drug, CDX-011, which worked effectively at treating breast cancer patients who no longer responded to other treatments, and was given the FDA’s Fast Track designation. The trial’s completion date is expected sometime in November of this year.
All things considered, CLDX has a valuation of $675 million. We already know that Rintega works on patients with recurrent GBM (why wouldn’t it work on newly diagnosed?) and we know that CDX-011 works.
I am not sure how this stock story ends any other way than happy for CLDX bulls.
Stocks to Buy Now: BlackBerry Ltd (BBRY)
BlackBerry (BBRY) stock is down 22% this year, but for the first time in a really long time, BBRY is finally seeing light at the end of a dark tunnel.
The company is finally embracing Android, and that move has the average selling price of smartphones surging higher, The company’s first Android-powered phone, the Priv, has an ASP of $700, far more than most discounted BlackBerry hardware. During BBRY’s last quarter, its ASP for smartphones rose more than 30%, and it was because of the Priv.
Looking ahead, BBRY wants to launch two to three more Android-powered smartphones this year, and as explained in a previous article, even moderate success can lead to a giant surge in revenue and profits.
Keep in mind that the Priv was only available at AT&T (T) and for just one month during BlackBerry’s last quarter. Moving forward, BBRY will report Priv sales from all nationwide carriers and in new markets where it has launched.
Hence, BBRY is likely having a very strong quarter.
Stocks to Buy Now: Skechers USA Inc (SKX)
Skechers (SKX) grew revenue nearly 27% during its last quarter, capping off the company’s second consecutive record year. This is a company that has completely reinvented itself with great marketing and penetration into new footwear categories.
With that said, Skechers is growing at nearly the same rate as Under Armour (UA), yet at just 13 times FY2016 EPS, it is valued like a retailer with no growth. Many investors keep waiting for Skechers’ growth to subside. However, that has happened yet, and with investors expecting full year growth of 17% and 13% over the next two years, respectively, it does not appear that a slowdown is coming any time soon.
Given its valuation along with a strong start to 2016, where revenue grew 35% in January, investors should expect SKX to keep moving higher both short- and long-term.
As of this writing, Brian Nichols was long BBRY, CLDX, RH, SKX and XPO.