By now, investors have had plenty of time to evaluate the performance of their portfolios in 2018. Chances are good that most investors who have done this didn’t enjoy the trip down memory lane. That’s because 2018 was a tough year to pick stocks to buy. In fact, it was the worst year for stocks in the past decade and the worst December since 1931.
And boy was the final month of the year volatile with stocks up or down by more than 1% on nine occasions. Throughout 2018, stocks were up or down by 1% on 64 occasions, eight times more often than in 2017.
Investors forgot that stocks don’t go up in a straight line; that volatility was more than just something that happened to gas prices.
Once upon a time, volatility was considered a good thing when it came to the markets because it shook out all the weak hands giving investors a more accurate picture of what a stock was worth and where it was headed.
It’s time for investors to come to grips with the fact volatility in the markets has returned, most likely permanently. And it’s far better to figure out a strategy that works in this kind of environment than for investors to bury their heads in the sand.
One way to do so is to find stocks to buy that have lost a significant amount over the past 30 days. With volatility back in the game, many of these stocks could just as easily bounce back by as much or more in the months ahead.
Here are seven stocks that have declined by 20% or more over the past 30 days that I believe could bounce back over the next 30-60 days.
3-Month Performance: -20%
Relative to S&P 500: -17%
As recently as early November, CNBC’s Mad Money host Jim Cramer liked Albemarle (NYSE:ALB) — the specialty chemicals company that provides lithium, bromine and refining catalysts to companies who use them in the manufacturing processes of their end-use products.
Since then, ALB stock has lost 30% of its value.
Albermarle reports fourth-quarter results Feb. 20 after the markets close. In the third quarter, as Cramer alluded to, Albermarle grew its revenue by 3% year-over-year to $129.7 million with earnings-per-share of $1.20, 13% higher than a year earlier.
The 3% sales growth might not have been enough for investors, but looking on the bright side, it was the company’s 11th consecutive quarter increasing revenue. As Cramer stated, there’s nothing wrong with those numbers.
For the entire year, Albermarle expects revenue growth and adjusted EPS growth of at least 7% and 15%, respectively, for all of 2018 when it reports the fourth-quarter results in a month.
I expect the stock to react positively to the news.
3-Month Performance: -27%
Relative to S&P 500: -24%
First, it was iPhone sales in China that got Apple (NASDAQ:AAPL) followers nervous about the company’s future and now it appears the latest worry to add to the wall of worry is its services revenues.
“While the services segment grew 18 percent in the December quarter, we’ve now started to get investor questions worrying about whether the App Store will be the next shoe to drop,” AB Bernstein’s Toni Sacconaghi wrote in a note Jan. 18. “Certainly, the headlines in the last few months haven’t been encouraging. Netflix, Spotify, and Fortnite have all stopped / threatened to stop paying the so-called ‘Apple Tax’ of 15 to 30 percent on App Store revenues.”
Throw that on the pile of concerns investors have about AAPL stock at the moment.
One thing I know for sure: Just as Warren Buffett bought a bunch of Apple stock in the third quarter of 2018, he likely bought more in the fourth quarter as Apple was falling, and I bet you he’ll be buying more in the first quarter if it continues to drop in value.
Apple’s business isn’t broken. Its stock is. The latter’s a much better problem to have than the former.
Constellation Brands (STZ)
3-Month Performance: -27%
Relative to S&P 500: -24%
Volatility was a big deal in 2018 and nowhere was that truer than in the cannabis industry.
Constellation Brands (NYSE:STZ) owns a big piece of Canopy Growth (NYSE:CGC), one of Canada’s biggest cannabis companies. Earlier in January, the company cut its guidance for the full year due in part to its $4 billion investment in Canopy Growth along with weakness in its wine and spirits business.
Given companies now have to account for changes in the unrealized value of equity investments every quarter, profits can vary. In the case of Constellation, it had a $164 million decrease in the fair value of its Canopy Growth investment, and that goes right against the bottom line. It’s possible the same thing will happen when it reports its fourth-quarter results.
Also, because of the debt taken to invest so heavily in Canopy Growth, Constellation will incur an additional $55 million in interest in fiscal 2019, an impact of 25 cents a share.
Not to worry.
Long term, Constellation’s $4 billion investment in Canopy could turn out to be peanuts if its expectations for the cannabis industry come to pass.
“[Marijuana] represents one of the most significant global growth opportunities of the next decade and frankly, our lifetimes,” CEO Bill Newlands said in its Q3 2018 conference call. “It’s an opportunity that is opening up much more rapidly than originally anticipated.”
I couldn’t agree more.
Globus Medical (GMED)
3-Month Performance: -21%
Relative to S&P 500: -18%
If you suffer from spinal-related issues, you’ve likely heard of Globus Medical (NYSE:GMED), a Pennsylvania-based orthopedic company that manufactures a comprehensive portfolio of innovative products to help surgeons and doctors provide patients with the appropriate treatment options.
When the company announced Q3 2018 results in November, which saw weaker revenues than expected, investors punished its stock. However, it looks as though that might have been an overreaction.
In early January, Needham analyst Michael Matson had some very positive things to say to his clients.
“After the close on 1/8/19, GMED preannounced 4Q18 revenue that was above consensus. GMED also provided initial 2019 revenue guidance that was above consensus and non-GAAP EPS guidance that was a penny below consensus,” Matson wrote. “We believe the 2019 revenue guidance could prove conservative given continued growth in robot unit sales, increasing robotics implant pull-through, and the trauma implant launch and we reiterate our Buy rating.”
Now, to be sure, one analyst does not make an omelet. However, of the ten analysts that cover GMED stock, only one has an underperform or sell rating at the moment.
Buy on weakness.
Stocks to Buy: Nvidia (NVDA)
3-Month Performance: -34%
Relative to S&P 500: -31%
While 2018 is a year most Nvidia (NASDAQ:NVDA) shareholders would like to put behind them — it lost 39% of its value as many of the big semiconductor stocks got hit — there’s a lot to look forward to in 2019.
Year-to-date, NVDA stock is up 18% through Jan. 18, in part because of the new GoForce RTX 2060 gaming GPU that uses Turing architecture and is priced at $349, allowing gamers using laptops relatively inexpensive access to the new technology.
Will a cheaper version of its RTX GPUs be enough to offset the reduced demand of its products from cryptocurrency miners? Probably not, but good news definitely can’t hurt.
On a positive note, well-known finance professor Aswath Damodaran bought Nvidia shares in December at $145. While it dropped below his purchase price, he’s confident it’s an excellent long-term play.
“I’m still waiting to get back to $145. I might never get there, but I like the company,” Damoradan said Jan. 9 on CNBC. “I mean, I think that there is a real chance growth can drop off next year, but I think long term I would still buy the growth in that stock at the prices that you get them for today.”
Nvidia is a growth stock dressed up in a value stock’s clothing.
Grand Canyon Education (LOPE)
3-Month Performance: -22%
Relative to S&P 500: -19%
A lot of people don’t like Jim Cramer’s schtick. I’m not one of his detractors. As I’ve said before on InvestorPlace, we all get things wrong sometimes when recommending stocks. He talks about so many different companies, so it’s easy to understand why he gets some calls wrong.
However, in October, Cramer got Grand Canyon Education (NASDAQ:LOPE) 100% right.
“The for-profit education industry tends to thrive under Republican presidents, as Democrats tend to view the whole business as something that’s predatory,” Cramer said Oct. 1. “I think you can put on a small speculative position in Grand Canyon here, but wait until after the election to buy more because the stock might sell off if the Democrats take Congress.”
Well, Americans headed to the polls Nov. 6, and the Democrats indeed took back the House, if not the entire Congress. Since then, LOPE stock is down 26%.
It has been a long time since I’ve recommended an education stock, but given its annual revenue and cash flows are both at record levels, and it’s trading for 25% less than it did three months ago, I’d say it’s a good bet for 2019.
Stocks to Buy: SVB Financial (SIVB)
3-Month Performance: -20.0%
Relative to S&P 500: -17%
2018 was one of those rare years where SVB Financial (NASDAQ:SIVB) stock didn’t do right by shareholders with a loss 19% on the year. This was its first year in negative territory since 2011.
“Don’t worry”, I thought to myself as the year came to a close. SIVB would rebound in 2019. Indeed it has, up 22% YTD through Jan. 21.
“Since SVB, America’s most innovative bank, has lost 39% of its value over the past three months and trades within 8% of its 52-week low, I’ll vote for it as the best bank stock to own in 2019.”
With a healthy net interest margin expected for fiscal 2018 of at least 3.55%, 94 basis points higher than Bank of America (NYSE:BAC), and possessing an east coast presence in the healthcare industry through its $340 million acquisition of Boston-based Leerink Holdings LLC, I see 2019 as a year where it delivers on its long-term, 10-year annualized total return of 26%.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.