Stock market investors are a very fickle bunch. Once-wildly popular stocks can quickly be relegated to the dustbin of history. Other times, barely-known companies can trigger an investor stampede, sending share prices into the stratosphere.
Most investors like to own stocks while they are in this viral phase. It’s exciting and can be very profitable to follow the hype. However, popular-stock chasing can have a dark side. Investors who buy stocks on the upswing, called momentum buyers, always run the risk that they are late to the party. This can sometimes leave them facing a selloff as soon as they buy in to the stock.
I prefer to take the opposite tact by investing in stocks that have fallen out of favor with the masses. These forgotten stocks can often provide outsized returns with barely any attention.
My theory is that despite being forgotten, investors are still familiar with these companies from their glory days. Therefore, just a tiny bit of good news will instantly attract investors on name recognition. In other words, investors are already psychologically “sold” on the stock, making the buy decision much easier than for an unknown company.
Today, I’ve found three forgotten stocks that have set up to be ideal buy candidates.
Forgotten Stocks To Keep On Your Radar: Groupon Inc (GRPN)
Groupon Inc (NASDAQ:GRPN):
This once-popular, deal-driven coupon company has experienced a spectacular fall. Shares have fallen into the deep value zone and have created a very compelling buy opportunity.
In 2011, Groupon went public at an incredibly high valuation. Shares soared 30% on the first day to $26, confounding the ever-growing bearish contingent.
The international discount platform was widely known as the world’s fastest growing start-up. It boasted operations in 35 nations with 150 million newsletter subscribers. The hubris had already become palatable when Groupon rejected Google’s $6 billion buyout offer in 2010, deciding to go at it alone with an IPO.
The excitement quickly faded as investors realized that the company was a black hole of marketing expenses, questionable management, and an unsustainable business plan.
Proving that business sustainability requires much more than a great idea, execution speed and growth, shares started their downward trend. The stock crushed the true believers and, despite aggressive turnaround efforts including the firing of the founder/CEO, eventually fell all the way to $2 per share.
But things are turning around for the beleaguered discounter. Shares are trading higher by over 25% this year on the back of improving metrics and a restructuring program.
The company reported a loss in the second quarter of just over $9 million but adjusted earnings hit $0.02 per share, exceeding analysts’ estimated $0.00. While this may not seem like much, the bullish story is billing growth, which has doubled quarter-to-quarter from 7% to 14%, signaling improved future revenue.
Groupon’s turnaround is thanks to CEO Rich Williams’ focus on mobile applications, the move away from paper vouchers, and several new initiatives. I fully expect shares to continue to climb in this forgotten stock.
Forgotten Stocks To Keep On Your Radar: Under Armour Inc (UAA)
Under Armour Inc (NYSE:UAA):
This performance sportswear maker’s shares soared from under $5 in 2010 to nearly $55 in mid-2015, a huge return by any measure. Then the stock started dropping. Investors lost interest as waves of bad news hit the shares. Plunging all the way to around $17 per share, Under Armour has entered the forgotten zone for bullish investors.
Under Armour just posted a net loss of $12 million or $0.03 per share. On the surface, this seems terrible and quickly caused investors to react by dumping shares. What the bears failed to take into consideration is the loss is much slimmer than the same time last year. Last year, the company posted a loss of $0.12 per share, so this quarter was a solid improvement.
The company is also in the middle of a restructuring plan, ramping up its digital presence and expanding away from a primarily U.S.-focused brand to a global footwear, apparel, and accessories name.
The world market is hungry for similar brands. I am excited about the potential of international growth for the company.
Forgotten Stocks To Keep On Your Radar: Square Inc (SQ)
Square Inc (NYSE:SQ):
Unlike the other two forgotten stocks, Square’s share price has been upward-trending since the end of February 2017. Why on earth would a stock that is higher by over 85% this year be included in a list of forgotten stocks?
The reason is that, as the original innovator in the mobile payment space, Square’s success has spawned numerous competitors that have stolen the spotlight and excitement despite the unbelievable recent stock price performance.
Names like Stripe, PayPal Here, Amazon Local Register, SumUp and even Verifone have captured investors’ imaginations in the search for the next big thing. The excitement of similar offerings, potential IPOs and established companies entering the niche has diluted the singular focus on Square.
Despite the competition, Square continues to thrive, with a 32% increase in gross payment volume, 41% improvement in total revenue, and a nearly 70% increase in loan volume in the second quarter year-over-year. Despite this stellar performance, shares have pulled back a little from the uptrend, creating an ideal buying opportunity.
There is no question that Square retains its mojo despite the plethora of startups and larger players entering the sector.
Risks To Consider: Sometimes forgotten stocks are overlooked for a good reason and never regain their past glory. Always use stops and position size wisely when investing in the stock market.
Action To Take: Be on the lookout for once popular stocks that have fallen out of favor. Consider adding one or more of the above stocks to your portfolio.
Editor’s Note: From Russian gas and Saudi oil to the isolated cobalt mines of Central Africa — the next decade will see the beginning of a global commodity “gold rush” unlike anything we’ve ever seen. Cash in the same way Rockefeller did over a hundred years ago…