There are a lot of things that can send good stocks into investors’ bad books. Public relations flubs, negative earnings surprises and changing political tides can all have a massive impact on a company’s share price.
Warren Buffett advises investors to “be fearful when others are greedy and greedy when others are fearful,” so believers in the oracle of Omaha know that it’s important to look at beaten-down stocks for opportunities.
Of course, there are lots of battered stocks out there that are taking a hit for a reason- but then there are others like Ford Motor Company (NYSE:F), AstraZeneca Plc (ADR) (NYSE:AZN) and Wells Fargo & Co (NYSE:WFC) whose depressed share prices represents great bargain opportunities.
All three stocks are likely to experience a bumpy ride over the short- to medium-term, but investors who have a few years to ride out the storm would do well to pick up these three diamond in the rough stocks now.
Diamond in the Rough Stocks to Buy: Ford (F)
American automaker Ford has had a rough summer and a lackluster year. F stock is down more than 10% so far in 2017 and investors are starting to doubt the automaker’s potential. Ford’s vehicle sales data showed a 7.5% drop in July from the same time last year. That was even worse than June’s 5.1% decline, which already spooked investors.
The firm’s second-quarter earnings were also disappointing when you look under the hood — although F beat earnings estimates, margins declined and many pointed to a lower-than-expected effective tax rate as reason for the firm’s profit increase.
So, Ford has got a few problems, but that doesn’t make the stock a dud. The firm also has a lot going for it. For one, the company has proven to be flexible, willing to shift strategy when necessary. That’s going to be huge in the decade to come, because the auto industry is likely to be the epicenter of the most groundbreaking technology innovation since the internet — driverless cars.
Ford has been open about its massive investment in driverless car technology and I think CEO Jim Hackett’s experience as head of Ford’s autonomous driving business will help him steer the firm through the choppy waters ahead.
Then there’s the dividend. The good thing about getting behind a company like Ford is that you get rewarded. F stock offers a 5.5% dividend yield, plus an annual supplemental dividend that is tied to the firm’s profitability.
Diamond in the Rough Stocks to Buy: AstraZeneca (AZN)
Pharmaceutical stocks are under a lot of pressure right now as questions about drug pricing and patents weigh on their share prices. AZN stock is no exception — the firm’s share price has fallen nearly 14% over the past month after a failed clinical trial and loss of patent protection for some of AZN’s biggest moneymakers gave investors reason to run.
AstraZeneca’s Imfinzi has already been approved for use among bladder cancer patients who have already been through chemotherapy, but AZN was hoping to expand that population to lung cancer patients as well. However, the clinical trials failed, and in response, investors fled.
Now, AZN is trading at just 15 times its expected earnings, a far cry from the S&P Healthcare average of 20.20. And although the failed Imfinzi trials are disappointing, now that the news has been absorbed I think we’ll see a bit more positivity on AZN stock.
While Imfinzi was a big part of the firm’s growth potential, there are other drugs in the pipeline that have the potential to increase AZN’s bottom line. Tagrisso, already a big moneymaker for AZN, could become a standard treatment for a specific population of lung cancer patients and Acalabrutinib is the firm’s latest lymphoma medication that targets difficult-to-treat cases and is due to be reviewed by the FDA by the beginning of 2018.
Diamond in the Rough Stocks to Buy: Wells Fargo (WFC)
Wells Fargo is perhaps the best example of a stock that has fallen on hard times but will almost certainly make its way back into investors’ good graces given time.
The American bank has a reputation for running a tight ship and delivering shareholder value, but an ongoing PR nightmare over unauthorized accounts has severely damaged the bank’s reputation and share price.
If there’s one thing you can be certain of, it’s that the public has a very short memory and soon enough, they’ll forget all about the fake account scandal that the bank is being pummeled for in the press. If you want proof, just look at General Motors Company (NYSE:GM), whose faulty ignition switches killed more than 100 people. At least one person reading this article is thinking, “they did what?!”
The fact remains that Wells Fargo operates with amazing efficiency and has historically traded at a premium because of it. However, the negative press regarding the account scandals has caused investors to panic sell, and a loss of efficiency, partly due to the scandal, has hurt the firm’s quarterly results.
However WFC has been working to take cost-saving measures, namely closing some of its branches. Wells Fargo is instead focusing on improving its digital presence, and the shuttering of its physical locations will help the bank transition.
I think WFC will have to absorb the impact of the account scandal for a few more quarters, but ultimately the bank will reclaim its reputation and resume business as normal. I don’t see the scandal driving the firm into the ground, and its current share price represents a great entry point.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.