It’s that time of year again … the time when cheesecloth mummies, fairy princesses and miniature ninjas make their way around your neighborhood begging for candy. But the zombies ringing the doorbell aren’t the only walking dead investors have to think about right now.
Despite that fact that the market has performed downright heroically this year, some stocks have been severe underperformers, largely left for dead.
See, these names aren’t dead at all. They’ve just been hibernating. And, once Halloween is over — and maybe even after all the year-end holidays are in the rear-view mirror — these stocks to buy will return from the grave, rewarding traders who had the guts to dig them up.
With that as the backdrop, here’s a closer look at the most beaten-down stocks to buy sooner than later. Each has offered glimmers of hope lately, even if investors have been too busy planning their Halloween tricks and treats to take notice.
In no particular order…
Zombie Stocks to Buy: JCPenney (JCP)
In light of the headwind rivals like Sears Holdings Corp (NASDAQ:SHLD) and Kohl’s Corporation (NYSE:KSS) have run into of late, it’s easy to understand why investors have doubts about J C Penney Company Inc (NYSE:JCP) as well. It looks like a carbon copy of the other two players, neither of which have impressed of late. JCP stock is down more than 50% since the end of last year.
The JCPenney you think you know, however, isn’t the JCPenney that’s actually in business today. The company’s been getting serious about omnichannel, is finally willing to rework its product mix by doing things like focusing less on clothes and adding goods like toys and it has started to reposition itself as a supplier rather than just a retailer. For example, it’s now marketing its home goods directly to hotels.
The road ahead is still going to be a tough one, but the overhaul is starting to take hold. Analysts expect a profit of 43-cents-per-share this fiscal year, well up from last year’s 8-cents-per-share.
Zombie Stocks to Buy: Horizon Pharma (HZNP)
To be fair, Horizon Pharma PLC (NASDAQ:HZNP) hasn’t exactly been crushed this year. It’s down 20% versus the S&P 500’s 20% gain since the end of 2016, so it’s clearly a laggard. So many other stocks have done so much worse though.
But why is HZNP a buy when it’s not even close to being profitable? It’s certainly not one of the stocks to buy for grandma’s “set it and forget it” retirement portfolio. But, it’s got more going for it on the drug development front than it ever has before. For example, its gout drug KRYSTEXXA is in the midst of a promising trial, and the company will be presenting that data at the annual ACR/ARHP meeting early next month.
Its pipeline is filling up quite nicely, with several phase 3 trials underway. There’s enough working in its favor to prompt a new buy rating from Goldman Sachs anyway.
Zombie Stocks to Buy: Mednax Inc (MD)
Mednax Inc (NYSE:MD) isn’t exactly a household name, though it’s possible you’ve been in one of its partner’s facilities without even realizing it.
The company is, in its own words, a “comprehensive, customized health solutions designed to improve clinical, operational and financial performance, and enhance the patient experience.” It’s particularly focused on pediatrics, though it has its hand in a variety of markets and types of facilities.
It’s not been an easy business to be in, with Obamacare not only under political attack, but crumbling on its own. On the flipside, not knowing what President Trump or the GOP have in store for the nation’s healthcare industry doesn’t make it any easier to get excited about investing in the disheveled industry. That’s why MD shares are down more than 30% year-to-date, with no end in sight.
What the market may be missing though — and why Mednax may be one of the better stocks to buy at this point — is the growing need for cost-conscious management of caregiving, and the fact that Mednax can and does adapt very well to its ever-changing business environment.
Zombie Stocks to Buy: Discovery Communications (DISCA)
The case against owning Discovery Communications Inc. (NASDAQ:DISCA) isn’t a complicated or empty one. That is, the advent of alternatives like Netflix, Inc. (NASDAQ:NFLX) and an accelerating cord-cutting movement continues to negate the need to focused channels like Discovery’s Animal Planet, TLC and the Science Channel.
What’s being largely ignored, however, is that CEO David Zaslav is turning these lemons into lemonade. Rather than playing the role of the victim of cord-cutting, he’s shaping what the future of television will look like. Namely, he’s planning a direct-to-consumer option that circumvents cable companies and sells Discovery’s programming to viewers on an a la carte basis.
It’s a multi-year project to be sure before it reaches a critical mass, but Discovery is one of the more forward-thinking cable content creators in this regard. Investors aren’t giving the idea — and others — their due, yet.
Zombie Stocks to Buy: TiVo Corp (TIVO)
Speaking of the future of television, you may want to add TiVo Corp (NASDAQ:TIVO) to your list of stocks to buy sooner than later. It has drifted lower all year long, but its fortunes could change quickly.
Yes, this is the same TiVo that powers the DVR recording feature found in many set-top boxes. Some of them are made by TiVo, and others simply employ TiVo’s technology.
And much like Discovery Communications, rather than remaining on the wrong side of the cord-cutting movement, TiVo is simply moving to the right side. It’s making more and more TV tuners and boxes that allow for recording programs delivered by means other than the traditional coaxial cable.
The juicy part of this prospect: The forward-looking price-to-earnings ratio is a very affordable 9.5.
Zombie Stocks to Buy: Discover Financial Services (DFS)
Not to be confused with television media creator Discovery Communications, add Discover Financial Services (NYSE:DFS) — the credit card company — to your list of stocks to buy sooner than later.
It has already come back to life, mind you. DFS shares have rallied 15% since early September. Even with the strong move, however, it’s still down for the year.
The bullish argument? Several years worth of stunningly reliable revenue growth, for one. The company has been oft’ criticized for not working its way into the modern era of digital payments, but it’s doing just fine as it is.
Zombie Stocks to Buy: Foot Locker, Inc. (FL)
Athletic shoe retailer hasn’t evaded the marketwide retail headwind names like Macy’s Inc (NYSE:M) or the aforementioned JCPenney. Indeed, Foot Locker and its peers such as Dicks Sporting Goods Inc (NYSE:DKS) or Finish Line Inc (NASDAQ:FINL) have been hit especially hard because, as Wells Fargo analysts Tom Nikic put it, “The athletic apparel/footwear space was one of the strongest sub-sectors in our group coming out of the recession; but after an impressive multi-year growth cycle, we see several areas for concern that are not only likely weighing on the industry, but also have the potential to accelerate.”
Foot Locker shares are down more than 50% so far this year, in step with those accelerating concerns.
There does come a point where things can’t get any worse though … a point where a company has little choice but to adapt, partner up, reinvent, or die. Odds are good the well-run Foot Locker can avoid the latter by taking at least one of the other three paths.
Morgan Stanley already sees this happening. In August, analyst Jay Sole opined, “We think brands will continue to allocate to Foot Locker a high-end product assortment which includes many styles consumers can’t find anywhere else … This unique high-end product offering is what will sustain Foot Locker over the long term.”
Zombie Stocks to Buy: Carrizo Oil & Gas Inc (CRZO)
Of all the ways most investors have thought of to make a play on oil’s recovery, Carrizo Oil & Gas Inc (NASDAQ:CRZO) wasn’t likely to be a top-of-mind pick for anyone. Maybe it should have been though. Revenues are on the rise again, and if all goes as planned the oil and gas explorer should start to grow its bottom line again this year … and a lot better than its bigger brothers are.
CRZO stock is down more than 60% so far for the year, perhaps because it continues to sell assets rather than cultivate them; earlier this month, it announced the sale of some of its Marcellus shale assets. There’s a method to the madness though, and sooner or later investors are apt to see there’s more upside than downside here.
Zombie Stocks to Buy: Popular Inc (BPOP)
Like Mednax, Popular Inc (NASDAQ:BPOP) isn’t exactly a household name, though a few households are familiar with it by virtue of being one of its customers.
Popular is a bank, more or less like any other bank, though considerably smaller than most banks consumers have heard of. It operates network of about 125 community banks in Puerto Rico, Florida, New York and New Jersey. With $31.9 billion in assets, it ranks as the 56th-largest bank in the United States.
Its size isn’t relevant, however. What’s relevant is its slow and steady revenue and earnings growth coupled with a decent dividend of 2.9% … a dividend that could start to swell soon if Popular as well as analysts expect it to. The pros say it will be worth $46.25 eventually. That’s more than 40% better than the stock’s current price.
Zombie Stocks to Buy: Applied Optoelectronics Inc (AAOI)
Applied Optoelectronics Inc (NASDAQ:AAOI) is a player in semiconductors and related technology. The company was slow to transition from older transceivers to new ones, and it got dinged by some investors for it. For instance, in Q2 over half of its data center revenue was still coming from older (and cheaper) 40G transceivers.
But the company has seen growth in this newer segment, and is adjusting to market demands. Besides, it still sells more than just transceivers, and it still sells to important customers from Microsoft Corporation (NASDAQ:MSFT) to Amazon.com, Inc. (NASDAQ:AMZN).
Between that reality and the fact that shares are now trading at a forward-looking P/E of 8.9, AAIO is one of the more undervalued stocks to buy soon.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.