Beaten-down stocks are often viewed as potential opportunities by savvy investors. Yet investors need to have the courage to go against the crowd, which is usually easier said than done amid negative market sentiment. If they wait until the recovery is established, everyone jumps on the bandwagon, and they are often left with only a fraction of the potential profit.
The decision to invest in beaten-down stocks would be less challenging if investors could correctly identify whether a stock is poised for recovery. Against this backdrop, I would like to discuss seven beaten-down stocks to buy for September.
According to a report by CNBC, the S&P 500 produced an average annual return of about 6% over the past two decades. But if investors missed the best 20 days in the market over that period, for example, because they were nervous and then reinvested later, their average annual returns would shrink to a mere 0.1%.
The Covid-19 pandemic has left investors with a volatile market. As most of our readers would concur, initially, the pandemic had a devastating effect on many sectors, including airline stocks, oil stocks and the tourism and hospitality industry. Some others weren’t directly affected by the pandemic but essentially got swept out with the tide over the past year. Many of those shares still trade at cheaper valuation levels yet look ready to make a rebound to their earlier glory.
With that information, let’s take a look at these seven beaten-down stocks to buy that are poised to gain traction in the coming months ahead:
- Alibaba Group (NYSE:BABA)
- Appian (NASDAQ:APPN)
- AT&T (NYSE:T)
- Boeing (NYSE:BA)
- Delta Air Lines (NYSE:DAL)
- Skillz (NYSE:SKLZ)
- Vertex (NASDAQ:VRTX)
Beaten-Down Stocks to Buy: Alibaba Group Holding (BABA)
52-week range: $152.80 – $319.32
Alibaba is among the world’s largest online and mobile commerce companies. It operates China’s most-visited online marketplaces, including Taobao and Tmall. Like Amazon (NASDAQ:AMZN), it is also a big cloud player, and has substantial investments in artificial intelligence (AI), autonomous driving, social media, healthcare technology and blockchain.
The company released Q2 results in early August. Revenue increased 34% year-over-year (YOY) to $31.9 billion. Non-GAAP net income soared 10% YOY to $6.73 billion, while diluted earnings per share soared 12% YOY to 32 cents. In addition, the company has $72.9 billion in cash, equivalents and short-term investments on its balance sheet.
On the results, CEO Daniel Zhang remarked, “For the June quarter, global annual active consumers across the Alibaba Ecosystem reached 1.18 billion, an increase of 45 million from the March quarter, which includes 912 million consumers in China.”
Despite the strong metrics, Alibaba’s bright prospects have taken a major blow this year from the Chinese government. National regulators have taken antitrust action against the company, issuing a record $2.8 billion fine for alleged anticompetitive behavior. The initial public offering of Ant Group was canceled late in 2020.
While BABA stock carries significant political risk, the upside could be massive. The company has a dominant business that generates tons of cash. Alibaba dominates the e-commerce space in China with a 69% share as of 2020, making the company the “Amazon of China.” Alibaba also has a 33% stake in Ant Group, a huge payments company that operates Alipay, which processes over half of China’s third-party payments.
Alibaba’s continued growth is pushing down BABA stock’s valuation. BABA stock hovers slightly above $160, down 31% so far this year. It currently trades at around 17.5 times forward earnings with a price-to-sales ratio of 3.7, compared to Amazon’s 59 times forward earnings and 3.9 P/S. Given its dominant position in China, BABA stock looks highly undervalued. Buy-and-hold investors who can take the political risk have a valuable opportunity to buy BABA shares at a significant discount.
Appian (APPN)
52-week range: $54.53 – $260
Appian offers a low-code software development platform, which enables organizations to develop applications. Rather than writing code, clients can build AI-powered applications and automated workflows using drag-and-drop tools and flowcharts with little or no coding required.
Appian announced Q2 results in early August. Total revenue increased 24% YOY to $83 million. Net loss stood at $23.8 million or 34 cents diluted loss per share, compared to $11.8 million, or 17 cents diluted loss per share, in the prior-year quarter. Cash and equivalents ended the quarter at $131 million.
CEO Matt Calkins is quoted saying, “In Q2, Appian increased cloud subscription revenue by 44% and announced the acquisition of a leading process mining firm. With this acquisition, we are unifying process mining and low-code automation.”
Appian is well-positioned to grow its business, as such technology typically drives efficiency. Appian’s tools allow employees to quickly deploy customized software. As a result, Appian has benefited from increasing demand from large enterprises.
According to Forrester Research, Appian accelerates software development by 17 times while cutting the costs in half. The company boasts a 98% retention rate and addresses a $37 billion market opportunity.
APPN shares currently trade around $109 and are down 33% so far this year. The stock has fallen 58% from its 52-week high in late January. Yet zooming out, the stock has gained 84% in the past 12 months. APPN shares trade at 23 times current sales. Potential investors could consider buying the dips in shares.
Beaten-Down Stocks to Buy: AT&T (T)
52-week range: $26.35 – $33.88
Dividend Yield: 7.7%
AT&T is the third-largest U.S. wireless carrier, connecting over 90 million phone customers. The wireless business contributes about 40% of revenue. WarnerMedia contributes less than 20% of revenue with media assets that include HBO, the Turner cable networks, and the Warner Brothers studios.
The group released strong second-quarter results in late July. It generated $44 billion in revenues, up 8% YOY. The carrier saw a 1.16 million increase in its wireless customer figure, almost four times the consensus estimates. Adjusted EPS surged to 89 cents, which represents a 7% increase YOY. Free cash flow stood at $7 billion. Management raised guidance for earnings growth for 2022, expecting to reach the middle single-digits in 2021.
AT&T is spinning off WarnerMedia in a deal with Discovery (NASDAQ:DISCA). The spin-off will allow management to focus on its core telecom business, expanding its 5G network while enhancing its fiber footprint in the industry. AT&T is also investing significantly in 5G wireless, as it sees it as the main growth engine in the future.
Given the upside potential from 5G wireless business, AT&T stock looks undervalued at its current price at $27.13 per share, down 5% so far this year. While AT&T currently generates a breathtaking 7.7% yield, it will be cutting its dividend once the spin-off deal closes in mid-2022. T stock is trading at less than 8.5 times forward earnings, compared to almost 56 times for T-Mobile (NASDAQ:TMUS). I believe the shares offer value at the current level.
Boeing (BA)
52-week range: $141.58 – $278.57
Chicago, Illinois-based Boeing is one of our most important aerospace and defense names. The company has operations in four segments: commercial airplanes; defense, space and security; global services; and Boeing capital. The commercial airplanes segment generally produces about 60% of sales and two-thirds of operating profit.
Boeing announced Q2 results in late July. Revenue surged 44% YOY to $17 billion. Net income came in at $567 million, or $1 diluted earnings per share, compared to a net loss of $2.4 billion, or $4.20 diluted loss per share, in the year-prior quarter. Meanwhile, the company burned $705 million in free cash flow. At the end of the quarter, cash and equivalents stood at $8.27 billion.
Following the earnings CEO David Calhoun remarked, “We continued to make important progress in the second quarter as we focus on driving stability across our operations and transforming our business for the future.”
Over the past two year, various execution problems across Boeing’s business has made the company less attractive for investors. Issues uncovered during flight testing have led to new delays in the 777X delivery schedule. Manufacturing problems forced Boeing to halt 787 deliveries several times in the past year. It also suffered another drawback as it had to cancel a planned Starliner crew capsule test flight to the International Space Station.
Boeing’s aircraft order backlog has barely increased, as cancellations have outweighed most new orders the company has won. BA stock trades 40% lower than its pre-pandemic price two years ago. It currently hovers slightly below $220, up 2% YTD. BA shares trade at around 2 times current sales. As the $200 level provides support, potential investors could consider buying the shares between $200 and $220.
Beaten-Down Stocks to Buy: Delta Air Lines (DAL)
52-week range: $27.92 – $52.28
Atlanta-based Delta Air Lines is one of the world’s leading airlines, with a network of over 300 destinations in more than 50 countries. Management announced Q2 2021 results in mid-July.
Adjusted revenue of $6.3 billion for the second quarter stood at 49% lower than its Q2 2019 revenue. Net income stood at $652 million or $1.02 diluted earnings per share, 55% lower than the second quarter of 2019. The airline generated $195 million of free cash flow. Cash and equivalents and short-term investments ended the quarter at $17.8 billion in liquidity.
CEO Ed Bastian remarked, “Domestic leisure travel is fully recovered to 2019 levels and there are encouraging signs of improvement in business and international travel. With the recovery picking up steam, we are making investments to support our industry-leading operation.”
Despite growing concerns about the delta variant of the coronavirus, airline booking activity continues to increase. Increasing business travel, solid leisure-travel demand, as well as high spending on Delta’s co-branded credit cards are contributing to significant top-line growth. Delta Air Lines’ high-margin revenue stream from its credit card partner American Express (NYSE:AXP) has recently outpaced pre-pandemic levels.
As a Covid-19 travel recovery play, DAL stock remains a vulnerable name if air travel demand slows down once again due to new variants of the virus. However, as soon as the pandemic is mainly under control, consumers will start traveling again, possibly leading to a big jump in DAL stock. The shares are significantly undervalued at the current price of $41.52, down over 20% from its high in April. They are down by less than a quarter of a percent so far this year and trade at 1.44 times current sales.
Skillz (SKLZ)
52-week range: $10.06 – $46.30
San Francisco, California-based Skillz is a unique gaming company that allows developers to host tournaments and provide competitive gaming activity to end-users. Its technology platform enables social competition, offering consumers an option to bet on games they play against each other.
Skillz announced Q2 results in early August. Revenue grew 52% YOY to $89.5 million. However, net loss soared to $79.6 million or 21 cents loss per diluted share, compared to a net loss of $20.2 million or 7 cents loss per diluted share in the prior year. Cash and equivalents ended the quarter at $693 million.
Following the announcement, CEO Andrew Paradise said, “Skillz is pleased to report strong revenue growth for the 22nd consecutive quarter and the closing of our acquisition of marketing platform Aarki, which will increase the efficiency of our user acquisition spend.”
As the results highlighted, the company is not yet profitable and continues to invest aggressively to grow its business. Management claims that its long-term value per customer is 3.8 times higher than its customer acquisition cost.
The reopening of economies could harm Skillz, as people would likely spend less time at home on their electronic devices. Skillz is, therefore, a speculative stock with significant upside potential. The shares will consequently remain volatile for some time.
SKLZ stock is shy of $11, less than a quarter of its 52-week high in early February. It is down 46% YTD. The shares currently trade at 12 times current sales.
Beaten-Down Stocks to Buy: Vertex (VRTX)
52-week range: $185.33 – $283.45
Biotechnology name Vertex Pharmaceuticals aims to discover and develop small-molecule drugs to treat serious diseases. It enjoys a strong position in treating the leading cause of rare genetic disease, cystic fibrosis (CF). Its key drugs for CF include Kalydeco, Orkambi, Symdeko and Trikafta, where Vertex therapies remain the standard of care globally.
Vertex released second-quarter 2021 results in late July. Product revenues increased 18% YOY to $1.8 billion. Non-GAAP net income soared 18% YOY to $811 million. Non-GAAP net income per diluted share stood at $3.11. Cash and marketable securities ended the quarter at $6.7 billion.
The company is expected to gain further market share in the CF market. Its approved therapies are currently used to treat only around half of the 83,000 patients in the U.S., Canada, Europe and Australia.
CEO Reshma Kewalramani remarked, “Looking forward, we continue to see significant growth ahead in CF, with more than 30,000 CF patients who may benefit from the triple combination but who are not yet treated.”
Thanks to its ample cash reserves of $6.7 billion, Vertex is expected to bring in new pipeline wins in the near future. The most critical candidate is CTX001, a gene-editing therapy targeting rare genetic blood disorders beta thalassemia and sickle cell disease.
VRTX stock is down almost 16% so far this year. It currently hovers at $200. It trades around 30% below its all-time high of $283.45 in early September. Forward P/E and P/S ratios stand at around 17.6 and 7.8, respectively. Interested readers could consider buying the dips.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
