Earning season can be either a nightmare or blessing for investors — or an ideal opportunity for those sitting on the sidelines to pick up a beaten up stock at an attractive price.
Granted, there is a reason why stocks end up beaten up during earnings season. In Fitbit Inc’s (NYSE:FIT) case, the company pre-announced a horrendous fourth quarter. Mattel, Inc.’s (NASDAQ:MAT) sales suffered from a Christmas retail season slowdown while Under Armour Inc (NYSE:UAA) signaled to the market that it won’t be growing at the rate it previously expected.
All three of these stocks are now trading at multiyear lows or even all-time lows, but investors with an appetite for some risk in their portfolio could take advantage of these down-but-not-out stocks.
So, here’s a look at why these beaten-down names are three stocks to buy for their coming rebound.
Rebounding Stocks to Buy: Fitbit (FIT)
As a long-term Fitbit shareholder, I was quite shocked when the company came out with a nasty pre-announcement which sent shares tumbling to new all-time lows. It has lost roughly 63% in the past year.
The obvious question is, now what.
With a market cap around $1.3 billion, investors could start hypothesizing that an acquisition in the works. Assuming Fitbit’s cash and cash equivalents balance of $284.2 million (as of October 1, 2016) remains roughly unchanged, then Fitbit’s enterprise value is barely $1 billion.
This is a small price to pay for a fitness tracking company that was as of December (and likely remains) the clear and undisputed leader in the group.
Rebounding Stocks to Buy: Mattel (MAT)
Mattel’s unusual earnings miss sent the stock tumbling to around $25, leaving it at a loss of 18%-plus over the last year.
The reason for the massive miss? The holiday selling season in both the U.S. and the international market was weak, and the holidays are when about half of all toys are sold.
No one is making excuses or trying to diminish the severity of the poor report but investors looking at the positive signs and willing to sit on MAT stock for some time could be rewarded over the long-term — and collect a near-6% dividend yield at the same time.
Here are some of the positives that reaffirm the long-term story.
- The core Barbie brand which boasts impressive incremental margins saw its revenue grow 9% (constant currency) for the full year, although sales were down in Q4.
- Sales of Fisher-Price, the company’s biggest brand, realized a 2% (constant currency) growth in the quarter.
- The Wheels brand (Hot Wheels, Matchbox, Tyco R/C) saw an 18% sales increase (constant currency) on the quarter.
Mattel is now led by former Google exec Margaret Georgiadis, who was recently named as CEO.
Her tech-savvy experience — not to mention coming in from an outside entity — could be just what is needed for MAT stock moving forward.
Rebounding Stocks to Buy: Under Armour (UAA)
The sentiment surrounding Under Armour has been poor, and any miss in its fourth-quarter print would send shares lower. However, the top-and-bottom miss was also coupled with a poor 2017 guidance and a surprising management change, which resulted in the stock plunging around 25%.
But how much worse can it get? In short, there really isn’t much more that can go wrong.
Q4 gross margins fell to 44.8% from 48% a year ago and 2017’s gross margins are expected to fall from 2016’s level. We can cross gross margin erosion off our list of concerns for 2017 because we know it will happen.
UAA stockr guided its 2017 operating income to be lower on a year-over-year basis. Similarly, we can scratch this off our list of concerns for 2017 because we know it will happen.
And we can also scratch off the sudden departure of a key executive, as Under Armour’s CFO Chip Molloy announced he will be leaving the company.
And the fact remains that Under Armour’s wide variety of products is still in high demand, and there is plenty of room to grow.
All UAA stock needs to do is beat the lowered bar for 2017, which some analysts believe is conservative. There is a lot going on Under Armour’s favor, including a new partnership with retailer Kohl’s Corporation (NYSE:KSS) and the large international opportunity, which the company isn’t losing its sights on.
As of this writing, Jayson Derrick did not hold a position in any of the aforementioned securities.
