I happened to read a May 4 article discussing the reasons why Bed Bath & Beyond Inc. (NASDAQ:BBBY) lost 17% of its value in the month of April — BBBY hasn’t had a positive annual return since 2013 — and it got me thinking about other potential stocks to buy that lost ground last month.
Why?
Investors have a way of overreacting to bad news which sometimes leads to stocks being oversold. The problem is identifying when that is happening because there are situations in which a stock is ripe for collapse.
At the beginning of 2018, I suggested ten stocks I thought could surprise in 2018 — Bed Bath & Beyond was one of them. Unfortunately, it’s been nothing but pain for the housewares retailer so far this year.
While it’s still generating positive free cash flow, I’m not sure I want to double down on BBBY and recommend it.
However, here are seven stocks to buy that lost 10% or more in April that I do feel are worthy of your consideration.
Stocks to Buy That Lost 10% in April: Spectrum Brands (SPG)
April Decline: 30.5%
Spectrum Brands, Inc. (NYSE:SPB) is in the middle of a major transformation that would test the mettle of any mid-cap company.
First, in January, Spectrum announced that it would seek buyers for its global batteries and appliances businesses so that it could focus on its higher margin, faster-growing businesses.
So far, it’s agreed to sell Rayovac batteries to Energizer Holdings Inc (NYSE:ENR) for $2.0 billion. It still is accepting offers for its Remington appliances business.
Then in February, it announced that it would merge with its majority owner, HRG Group Inc (NYSE:HRG), a $10 billion transaction that provides HRG shareholders with greater liquidity and a singular focus.
Finally, on April 26, Spectrum announced weaker than expected earnings and guidance along with news CEO Andreas Rouvé was being replaced after three years in the job.
All in all, it’s been a very turbulent four months for the company.
However, looking at the glass half full, its continuing operations will still make at least $600 million in fiscal 2018. Trading at less than ten times cash flow, SPB stock is cheaper than it’s been since 2011.
Stocks to Buy That Lost 10% in April: Teradyne (TER)
April Decline: 27.4%
If you’re an Apple Inc. (NASDAQ:AAPL) shareholder, you’ve probably heard the chatter about smartphone sales slowing including the iPhone X. For a company like Teradyne, Inc. (NYSE:TER), who manufactures automated test equipment for testing smartphones, data storage and other complex electronic systems, that’s not good news.
As a result, Teradyne seriously lowered its Q2 2018 guidance when announcing first-quarter results April 25.
“Despite the strong first quarter results, the demand outlook for 2018 mobile device test capacity declined sharply in the quarter and our second quarter guidance reflects that revised outlook,” CEO Mark Jagiela said in Teradyne’s press release.
So, instead of generating the Wall Street sales consensus of $691 million in the second quarter, Teradyne expects revenues to be as low as $490 million. This is also significantly less than the $697 million it generated a year ago.
Despite the setback in the second quarter, Teradyne is generating more free cash flow than it has in the past decade. It currently has an enterprise value of $7.2 billion, which is just 13 times free cash flow.
That’s close to value territory and worth a sniff.
Stocks to Buy That Lost 10% in April: LendingTree (TREE)
April Decline: 25.4%
Have you heard the expression, “Stock prices don’t go up in a straight line?”
That definitely applies to LendingTree Inc (NASDAQ:TREE), an online platform for helping consumers find the best loan. Even though the stock is down 25% in April, LendingTree CEO Doug Lebda recently appeared at the top of my list of CEOs who’ve delivered for shareholders with a 3,216% cumulative return since March 2010.
By comparison, that’s almost three times the return of Amazon.com, Inc. (NASDAQ:AMZN) over the same period.
Businesses that make or save people money or time always seem to be in demand and LendingTree is no exception.
As is often the case, investors weren’t too happy with the company missing analyst estimates for Q1 2018, sending TREE stock down more than 17% April 26.
What was the big miss?
Analysts were expecting $1.12 per share; LendingTree delivered $1.10, 29% higher than the same quarter a year earlier. That’s hardly an imprisonable offense.
Sure, TREE isn’t cheap, but Doug Lebda’s proven he can deliver for shareholders. As they say, “The proof is in the pudding.”
If you’ve owned TREE for a long time you know what I’m talking about.
Stocks to Buy That Lost 10% in April: Camping World Holdings (CWH)
April Decline: 10.6%
It’s been a long time since I’ve watched an episode of The Profit on CNBC, Marcus Lemonis’ show helping small businesses succeed. With five seasons in the can and more than $75 million invested in American entrepreneurs, Lemonis has proven to be a good allocator of capital.
Of course, his day job is running Camping World Holdings Inc (NYSE:CWH), the RV dealership-turned camping equipment retailer he took public at $22 a share in 2016.
Camping World announced its first-quarter earnings May 8 and despite some really strong numbers on the top- and bottom-line, investors fixated on RV selling prices, both new and used, which were down 4% and 7% respectively in the quarter.
It was this aspect of the report along with a one-cent earnings miss that forced CWH’s share price to drive off a cliff, down more than 17% on the day, and back to its original IPO price.
Frankly, with all the acquisition opportunities available, along with healthy organic growth, CWH is now cheaper than it was when it went public.
Aggressive investors ought to be buying at these levels.
Stocks to Buy That Lost 10% in April: Acuity Brands (AYI)
April Decline: 11.8%
It’s been a painful couple of years for Atlanta lighting specialist Acuity Brands, Inc. (NYSE:AYI) and its shareholders who’ve seen $5.5 billion shaved off its market cap since the end of 2015.
CEO Vernon Nagel, who’s been in the top job since September 2004, has personally seen paper losses of $47 million over the past 28 months. If there’s anybody who wants to see AYI stock rebound, it would be someone who owns just less than 400,000 shares.
In Acuity’s situation, the problem is profits. They’re shrinking. In the second quarter ended February 28, 2018, operating profits were $88 million, 18.5% lower than a year earlier.
Sales, while not showing massive advancement, did manage to grow by 3.4% in Q2 2018 to $832 million, exceeding management expectations. Operating in a moribund lighting market, Acuity is making lemonade out of lemons by implementing cost savings initiatives to ensure its profitability doesn’t deteriorate any further.
Like a value investor waiting for his or her time to strike, Acuity is biding its time until the business improves.
With free cash flow that’s higher than it’s ever been, Acuity’s stock is definitely on sale. However, like all stocks, I can’t predict when the lighting industry is going to resume its growth, but when it does, Acuity will be back trading in the $200s.
Stocks to Buy That Lost 10% in April: 3M (MMM)
April Decline: 10.7%
IN April, I included 3M Co (NYSE:MMM) in my list of seven stocks that are great stocks and great businesses.
Over the past decade, 3M stock has delivered an annualized total return for shareholders of 11.7%. For comparison, General Electric Company (NYSE:GE) delivered -4.1% for its shareholders over the same period — a record I’m sure leaves it at the bottom of S&P 500 stocks.
So, why did MMM lose more than 10% in April? InvestorPlace’s Bret Kenwell can explain. Kenwell wrote on April 25:
“When the stock market’s not in a good mood, missing earnings and coming up short on guidance — no matter how much the stock has already suffered — is a recipe for disaster. From the midpoint of management’s outlook, 3M now expects earnings per share of $10.37 vs. $10.45 in the prior outlook and organic sales growth of 3.5% rather than 4%.”
With most companies hitting earnings out of the park in a trading environment in which investors don’t seem to care about earnings beats, to miss earnings is inexcusable.
As Kenwell suggests, 3M is in a funk, which makes it a great time to buy its stock in my opinion.
Stocks to Buy That Lost 10% in April: Aaron’s (AAN)
April Decline: 10.3%
Once upon a time, I followed Aaron’s, Inc. (NYSE:AAN) stock because I would drive by one of its stores in Peterborough, Ontario, on my way to a family member’s cottage. Otherwise, I’m not sure I ever would have heard of the lease-to-own company.
While investors were disappointed with Aaron’s first-quarter earnings, CEO John Robinson was far more sanguine.
“Revenue grew 13.1% in the first quarter and we continued to invest in new retail partnerships and other initiatives to drive long-term earnings growth,” said Robinson. “While profitability was lower for the quarter due to increased operating expenses, we are encouraged by the early results we are seeing from our strategic investments and believe we are on track to achieve our 2018 financial objectives for each of our businesses.”
Over the past decade, Aaron’s stock has generally had one or two corrections in every calendar year. Otherwise, it’s been very consistent delivering annualized total returns of 10%.
Now that the first correction is out of the way, the likelihood of another one in the next 3-4 months seems unlikely unless it delivers a big miss in the second quarter.
Long-term, Aaron’s in a great business, in good times and bad.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
