It’s always difficult to predict when underappreciated, beat-down stocks will rebound. In fact, it’s pretty impossible. However, we can always seek to understand which companies are down but not out — the stocks to buy that are positioned to rise.
This is the basic investment principle that underpins value investing. Find out what’s underappreciated and invest. Then, wait for the market to come to its senses and appreciate those companies. Of course, there’s obvious inherent risk in this strategy. The market may never see the value and prices may never rise. Plus, prices can decline.
But that’s investing. So, what follows is a list of seven stocks to buy that are fundamentally good, based on their financial positions. Currently, these names are all facing tough situations. However, in my view, these particular stocks also have what it takes to rebound.
- Taiwan Semiconductor (NYSE:TSM)
- Penn National Gaming (NASDAQ:PENN)
- AT&T (NYSE:T)
- Nio (NYSE:NIO)
- Alibaba (NYSE:BABA)
- Airbnb (NASDAQ:ABNB)
- JD.com (NASDAQ:JD)
Beat-Up Stocks to Buy: Taiwan Semiconductor (TSM)
Maybe it’s a bit over the top to call Taiwan Semiconductor a “beat-up stock.” After all, it is currently rated a buy and most investors are aware of the company’s importance. Yet at the same time, if we look at TSM’s current price and compare it to target stock prices, the case for it being beat-down emerges.
Right now, the average target stock price for TSM stock is $146.33, according to the Wall Street Journal. However, shares can currently be purchased for around $119 as of Aug. 4. There is also chatter that Taiwan Semiconductor is overvalued in some circles.
One recent Seeking Alpha article spells out the idea in detail. It focuses on the point that, although TSM has a wide moat due to its foundry, it’s still overvalued. Further, the piece proposes that the potential for reversion to mean price levels represents a risk to the stock. However, the article does go on to conclude that TSM stock could potentially double long-term.
I agree with that conclusion — and cannot overstate the importance of this company. Whether you look at it from a pure semiconductor-manufacturing perspective or from a strategic geopolitical angle, TSM is incredibly valuable. In fact, it surprises me that the stock isn’t worth even more, given all that’s happening in the world with semiconductors, Taiwan, China, the U.S. and the global economy.
Penn National Gaming (PENN)
When I last wrote about Penn National Gaming on Jul. 26, I noted that it’s a good idea to buy into this stock before it releases its second-quarter earnings. Today, I still believe that. Why? Because I think PENN stock is actually the very definition of “beat-up and ready to break out.”
The crux of my argument is that 2020 dealt a blow to the company, which makes it difficult to accurately judge its merits. If we compare PENN’s revenues and net gains between 2019 and 2021, though, we can see that the company has strengthened significantly. To reiterate:
“Penn National Gaming is a stronger operator even if its revenues were slightly down in Q1 2021 compared to Q1 2019. Although revenues were largely identical in the two periods the company was clearly stronger in Q1 2021. It derived a net gain of $90.9 million […] but only $41.0 million in Q1 2019 on nearly identical revenues.”
As I said in my previous article, there’s “plenty of reason to believe there is growth ahead” for this pick of the stocks to buy. With an average price target of $104.31 today, investors would be wise to buy PENN stock now before it’s back on the rise.
Beat-Up Stocks to Buy: AT&T (T)
Next up on this list of beat-up stocks to buy is T stock. All in all, there was a lot to like about AT&T’s Jul. 22 Q2 earnings report. At the highest level, the company showed revenue growth of 7.6% on a year-over-year (YOY) basis, recording $44 billion for the quarter. However, AT&T did post marginally lower operating income as well. That figure was $3.3 billion in Q2 2021, down from $3.5 billion a year earlier.
Despite that fact, though, the company still felt confident enough about the results to increase its guidance moving forward. Now, the company aims to maintain its gross capital investment and capital expenditures at $22 billion and $17 billion, respectively. While doing so, it also increased guidance for revenue growth, earnings per share (EPS) and free cash flow (FCF) for the remainder of the year.
When it comes down to it, AT&T is being bolstered by its HBO Max streaming service and significant 5G investments. Share prices won’t skyrocket upward given that this is a mature business. However, they should rise. Plus, the nearly 52 cent dividend associated with T stock only sweetens the deal.
Nio is going to keep being a tough stock to figure out. On the one hand, the investment case is pretty straight forward. Nio is one of the pioneering forces in electric vehicles (EV) in China, which has the world’s largest EV market. Nio is also increasing its vehicle deliveries at a breakneck pace. Plus, the company is making leaps and bounds forward in terms of financial fundamentals and operational efficiency.
When it comes to stocks to buy, NIO is almost as clear a slam dunk as there can be.
Outside of the pure business technicals, though, there are extraneous forces keeping the share price down — in fact, lower than it might otherwise be. More specifically, Nio is facing the volatile nature of EV stocks as well as a serious tech crackdown in its home country.
No one can predict exactly how long the ramifications will continue, but clearly this can’t last forever. So, if you believe that EVs are a fundamental part of the transportation landscape moving forward, NIO stock is a strong bet. The company provided record delivery numbers yet again just a few weeks ago. It would take something truly catastrophic to depress the stock for much longer.
Beat-Up Stocks to Buy: Alibaba (BABA)
Like many others, for months I’ve been harping on the idea that Alibaba simply makes sense at current prices. However, the story around Chinese tech regulation has continued to get more and more severe, pulling BABA stock lower and lower.
That’s a potential boon for investors bold enough to establish a position now based on its presumed rebound. And to me, it’s a case of when — not if — Alibaba will rebound.
Even if BABA stock goes down again from its current price in the $200 range, it’s almost guaranteed to blow past that moving forward. Once Beijing feels confident that it has reined in its tech sector, the regulations will ease. At that point, Alibaba will move a lot closer to the $279 price that analysts think it deserves on average.
Specifically, Alibaba Cloud is becoming increasingly important to the business’ future. It became profitable for the first time in early 2021. Additionally, Alibaba is the “third-largest public cloud company” behind only Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).
Moving forward, BABA is clearly one of the better stocks to buy with its increasingly relevant business prospects.
Airbnb held its initial public offering (IPO) back in December, which was a massively successful effort. The company ended up more than doubling the IPO share price to $146 from $68 a day earlier. That sudden, huge increase gave ABNB a market capitalization of over $86 billion — much higher than what it had originally sought. Since then, though, ABNB stock has gone up and then down again.
The net effect? Investors can now get ABNB stock at IPO prices. Plus, there’s a lot to suggest that the company’s fortunes will be improving as we move out of the pandemic. The most obvious catalyst — pent-up travel demand — almost doesn’t bear mentioning at this point. But yes, people are itching to get out and Airbnb will help facilitate (and profit off) the fulfillment of that need.
According to the Wall Street Journal, 34 analysts currently covering Airbnb have assigned it an average target price of $173.68. ABNB stock should win, but it’s far from a slam dunk. The fact that there are roughly as many “hold” ratings as there are “buy” ratings testifies to that idea.
However, according to Yahoo! Finance, there’s also good reason to believe that next year will be better than this year from a revenue perspective. The consensus is that Airbnb will see $5.4 billion in revenues throughout this year. That number could rise to an average of $6.96 billion in 2022, based on estimates. Altogether, ABNB is definitely one of the better beat-up stocks to buy.
Beat-Up Stocks to Buy: JD.com (JD)
Last up on this list of stocks to buy is JD stock. If Alibaba is worth investing in due to headline risk, then so too is JD.com. Basically, this company is another massive and important Chinese e-commerce name.
Like BABA and others, JD is also suffering as China’s government clamps down on tech companies. But those regulations should ultimately serve the Chinese market well, although they’re temporarily driving prices down right now. And all told, that extraneous force’s negative price pressure is a boon for the right investor.
JD stock was marching up in step with its impressive annual growth in the last few years. Then, regulators hit Chinese tech companies and prices — after peaking above $108 in February — slid downward.
It is the same story here. Analysts believe these shares are worth much more than they currently sell for. At around $71 today and with an average target price of about $97, there’s plenty of upside.
Investors only need to look at broader metrics like compound annual growth rate (CAGR) to understand how strong JD.com exactly is. Between 2016 and 2020, the company witnessed a 33% CAGR based on revenues (Page 5). And that number was an even higher 39% between the first quarters of 2020 and 2021. The company counted 499.8 million customers in Q1 2021. Now, its historical trajectory suggests it should have roughly 520 million at next count.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.