There are some stocks out there that are just winners. Time and time again, they defy expectations and head higher than anyone thought imaginable. I’m talking about Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:NFLX), Netflix, Inc. (NASDAQ:NFLX), Alphabet Inc (NASDAQ:GOOG) and Nvidia Corporation (NASDAQ:NVDA), among others.
There are also some stocks out there that win some and lose some … this is the category most stocks fall into. Overall, they deliver in-line performance with the market over time, sometimes running ahead of the market and other times falling behind it.
Then there are some stocks that can’t seem to win no matter what they do. Just as the winners defy expectations and head higher than anyone thought imaginable, the losers also defy expectations and head lower than anyone thought imaginable.
But sometimes those losing stocks catch a big break and win. And when they do, they head higher in a hurry because no one ever saw it coming.
So if you’re looking for a potential big winner, start by looking in the basket of stocks that no one expects to win.
Here’s a list of my three favorite stocks that no one expects to win, but might go ahead and win anyways.
“Win-Less” Stock 1: Pandora Media Inc (P)
Several years ago, Pandora Media Inc (NYSE:P) pioneered the internet music streaming world. But then, Pandora missed the boat on on-demand music streaming, and the company was quickly pushed out of the industry it invented. Now, music streaming platforms with massive on-demand subscription bases, like Spotify Technology SA (NYSE:SPOT) and Apple Inc (NASDAQ:AAPL), rule the music streaming world.
Pandora, which was too late to the on-demand trend, is still seeing falling users and engagement.
Pandora stock, meanwhile, has dropped from $35 and up in 2014 to $5 and below today. No one, investor or consumer, really thinks that Pandora will be around that much longer.
But there is finally a light at the end of the tunnel for this struggling music streaming platform.
Pandora just acquired digital audio tech firm AdsWizz, and in doing so, potentially changed the entire company’s growth narrative from music streaming platform to audio streaming advertising marketplace.
The whole idea is that the AdsWizz acquisition accelerates Pandora’s ad tech roadmap, thrusts the company more deeply into the secular growth audio advertising market, ditches the company’s reliance on its struggling music streaming platform, and opens up new revenue opportunities.
AdsWizz is a firm that specializes exclusively in digital audio advertising. This is a market that is growing at a 42% clip. Consequently, Pandora’s acquisition of AdWizz is essentially a head-first dive into a 40%-plus growth market.
Moreover, AdsWizz counts essentially everyone in the digital audio advertising market as customers. That includes some of Pandora’s red-hot competitors like Spotify and SoundCloud. Essentially, then, Pandora will be running a business which provides advertising solutions to its competitors.
All together, Pandora is in the early innings of a massive pivot which could result in this stock’s first win in a long time. If that happens, Pandora stock could roar higher because expectations are so depressed.
“Win-Less” Stock 2: Francesca’s Holdings Corp (FRAN)
Much like Pandora, Francesca’s Holdings Corp (NASDAQ:FRAN) was one of the hottest trends several years ago.
From 2010 to 2016, cumulative comparable sales growth as FRAN was in excess of 50%, a mark untouched in the retail space. The company was making a killing selling artsy and cute clothes and accessories to teenage girls. Essentially, FRAN sells the type of stuff that would look great in an Instagram or Pinterest post, and as photo-first apps like Instagram soared in popularity, so too did the popularity of FRAN.
But that popularity has taken a major step back recently. And by major, I mean major. Comparable sales were down 15% last quarter, while gross margins fell 250 basis points.
Most investors take this a sign of changing times, and that FRAN has lost its edge in today’s retail world. That is why FRAN stock has fallen all the way to below $5 (about a year ago, it was a $15 stock).
But I’m not so sure the times are changing for good. The Instagram and photo-first app tailwinds that propped FRAN up over the past decade are still alive and well. if anything, they are actually growing with the emergence of Snap Inc (NYSE:SNAP).
From my perspective, then, this setback in comparable sales growth is just a natural reset after a decade of red-hot growth. Once this reset period concludes, and it should soon with easy laps coming up, then FRAN stock could soar much higher considering its hugely depressed valuation.
“Win-Less” Stock 3: Snap Inc (SNAP)
When Snap Inc (NYSE:SNAP) went public, there was a bunch of hype surrounding the company’s potential growth prospects. Investors pushed the stock up, and analysts issued largely bullish ratings on the stock with high price targets.
Most people thought Snap stock was going to be a winner.
It ended up being a loser. Several disappointing earnings reports in a row sent Snap stock spiraling all the way to $14. Sentiment went dour quick. Investors sold. Analysts downgraded.
And all the sudden, everyone thought Snap stock was a perpetual loser.
But then Snap did the unthinkable in early February. They announced better than expected quarterly numbers. Snap stock, which had been bruised and beaten into the report, soared on the news, from $14 to $20.
That didn’t last long. In the months following that report, Snap stock has traveled all the way back to down $14. Once again, it is being thrown into the perpetual loser box.
But that isn’t the case. If anything, things have gotten better for Snap over the past several months. According to multiple data sources, first-time installs are up. Downloads are up. Usage is up. Popularity is up.
Everything is up. Except for Snap stock.
That smells like an opportunity to me. Especially because it is Snap stock. This is the type of stock you want to sell when everyone is buying, and buy when everyone is selling.
Right now, everyone is selling.
As of this writing, Luke Lango was long FB, AMZN, NFLX, GOOG, AAPL and SNAP.
