Don’t fight the trend, as the Wall Street saying goes. Betting against the direction of the market can often be a losing move. Plus, when it comes to the most-hated stocks, there’s typically a good reason why analysts and investors are shunning them.
For example, a stock might be hated because its fundamentals are deteriorating. Or, factors outside of a company’s control are set to negatively affect the business. In these situations, you can find yourself catching a falling knife — buying the dip on what looks like a cheap stock only to see it drop even lower.
That said, there are always exceptions to the rule. Wall Street sometimes gets the story wrong, or overreacts. This can send stocks to price levels that are a bona fide steal. When that’s the case, it makes sense to be a contrarian and pounce on the opportunity.
So, which out-of-favor, most-hated stocks look like great buys right now? Keep an eye on these knocked-down names to buy:
- Alibaba (NYSE:BABA)
- Bed Bath & Beyond (NASDAQ:BBBY)
- Canopy Growth (NASDAQ:CGC)
- 3M (NYSE:MMM)
- Nano Dimension (NASDAQ:NNDM)
- AT&T (NYSE:T)
- ContextLogic (NASDAQ:WISH)
Most-Hated Stocks to Buy: Alibaba (BABA)
Based in China, shares of e-commerce powerhouse Alibaba have been trending lower in the past year. However, it has only been in recent months that investors have grown very bearish on BABA stock. This is understandable for two reasons.
First, there’s a lot of turbulence playing out right now in the company’s home market. Between the Evergrande (OTCMKTS:EGRNF) crisis and cuts to China’s economic growth forecasts, the macro situation does not look great. But second (and maybe more importantly), Alibaba has been one of the hardest-hit names in China’s regulatory tech crackdown.
Right now, it’s unclear why China has decided to flex its power against one of its most successful companies. However, while Alibaba appears to be in a situation where risk outweighs the positives, you might want to fight the trend and enter into a position in BABA stock at today’s price levels.
Still China’s answer to Amazon (NASDAQ:AMZN), Alibaba should have a long runway ahead of it when it comes to its e-commerce and cloud businesses, as well as other ventures. With a low forward price-earnings (P/E) ratio of just 14.93 times, now may be the time to buy this pick of the most-hated stocks. BABA closed just under $140 on Oct. 4 and is down nearly 51% over the past twelve months.
Bed Bath & Beyond (BBBY)
Missing on earnings by a wide margin, it’s not a head scratcher as to why BBBY has tanked in recent days. Earlier this year, investors were bullish on this heavily shorted turnaround play. Yet, after the recent second-quarter results, the short-side appears to have made the right call betting against a turnaround. Since hitting a high of $53.90 in January, this pick of the most-hated stocks is down over 70%.
So, with recent results bolstering the bear case, why buy Bed, Bath & Beyond? After its latest beatdown, it may be all uphill from here. Reddit traders have fled the scene. However, unlike earlier this year, this stock is no longer trading at a valuation that prices in its ultimate comeback as a near-certainty. Instead, the skeptics have won the battle, but their downward push has become overdone.
That’s not to say BBBY stock is going to bounce back next week, next month or even next quarter. However, priced for disappointment, just coming in ahead of now-lower expectations over the next year may be enough to reverse the trend. Keep in mind, the risks run high (especially as supply shocks worsen for retailers). But joining the lonely long side here could end up being a great move.
Most-Hated Stocks to Buy: Canopy Growth (CGC)
In my most recent coverage of marijuana stocks like Sundial Growers (NASDAQ:SNDL) and Tilray (NASDAQ:TLRY), I’ve been cautiously bullish. True, valuations are still frothy and profitability is elusive. But U.S. legalization could happen within the next year or so. As such, I’m still leaning opposite the overall market when it comes to this sector.
This take applies to Canopy Growth as well. Like the companies mentioned above, this pick of the most-hated stocks still looks pricey, trading at 9.39 times projected sales for fiscal 2022. Getting out of the red is a work in progress, too (although the company did post positive earnings per share (EPS) last quarter). However, consider how quickly meme traders and Wall Street professionals will warm up to Canopy if pot reform is passed.
This potential makes buying CGC stock a potentially shrewd move. Today, the stock trades lower than it did before “blue wave” election results in November.
With its backing from Constellation Brands (NYSE:STZ), Canopy could easily become a dominant player in a fully open U.S. cannabis market. Admittedly, this is more of a bet on how the market will react to future headlines rather than anything else. But at current price levels? It may be a wager worth taking.
After a solid recovery in price since the onset of the pandemic, MMM stock has started to slide lower in recent weeks. Why? To some extent, the specter of rising interest rates has dampened the appeal of 3M’s dividend.
As bond yields move higher, this industrial conglomerate’s 3.36% dividend yield isn’t going to look as solid as it once did. Plus, there’s another key reason investors are souring on 3M: inflation. The company itself has said inflation could start affecting earnings, as it is unable to raise prices to fully cover surging labor, logistics and materials costs.
So, after falling from more than $200 to around $175 per share today, are more declines in the cards? It’s hard to tell. On one hand, recent challenges notwithstanding, MMM is still considered a safe harbor stock. If markets experience a true correction, it may fare better than stocks overall. But on the other hand, inflationary and interest-rate headwinds could still challenge 3M’s status as a Dividend Aristocrat.
Put simply, when it comes to this pick of the most-hated stocks, it’s hard to tell whether the market is right or overreacting. Yet, MMM is already cheap compared to peers. The stock has a forward P/E of 17.73 times. As such, investors should keep an eye on if this name and watch for another drop in the price.
Most-Hated Stocks to Buy: Nano Dimension (NNDM)
Nano Dimension was a popular meme stock earlier this year. However, since February, NNDM stock has experienced a tremendous decline. Since hitting a 52-week high of $17.89, this pick of the most-hated stocks has fallen nearly 70%. It trades for around $5.50 per share as of this writing.
Of course, that’s bad news for those who bought this 3D-printing stock at higher prices. But for the investors just taking a look now? This may be a situation where the risk-return is in your favor. Trading for not much more than the cash on its balance sheet, the downside potential could be minimal here — even if stocks overall sink lower.
So, the downside risk is probably low. But what about the upside? Well, it’s far from guaranteed that NNDM will experience a liftoff moment in the immediate future. Last month, I urged caution, noting its $1.4 billion cash pile still needs to be turned into a worthy operating business. The company is more focused on developing technology than improving its results and making Wall Street happy.
Higher-than-expected cash burn will throw my low-downside-risk argument out the window. But for now, with its future potential barely priced in, Nano Dimension may still be an ideal out-of-favor name to keep on your radar.
Most stocks — from blue chips to more speculative names — have performed well over the past eighteen months. However, that hasn’t been the case for T stock. Shares have been flat since mid-2020. So, what made this telecom giant one of the most-hated stocks on Wall Street?
Mainly, its costly media acquisition spree, which loaded up the balance sheet with debt and put AT&T at risk of cutting its dividend. These fears were proven correct earlier this year, when the company announced plans to merge its WarnerMedia unit into Discovery (NASDAQ:DISCA, NASDAQ:DISCK). Once the company completes this transaction, the stock will see a big cut in the quarterly payout.
Investors sold the stock on the rumor of a cut — and sold it again on the news of dividend reduction plans. But at around $27 per share now, the worst is likely already baked into the valuation. Trading for a high-single digit forward P/E ratio (8.44 times), T is one of the cheapest large-cap stocks out there. Better yet, it may not stay depressed at these levels for long.
This name could see upside from its pending divestiture. It could also win by shifting its focus back to its core telecom unit. So, with that in mind, you may want to go contrarian and enter a position in T stock at current prices.
Most-Hated Stocks to Buy: ContextLogic (WISH)
Last up on this list of the most-hated stocks on Wall Street is ContextLogic. By-and-large, the dramatic change in opinion on WISH stock over the past few months makes sense. For investors buying on fundamentals, the situation with this e-commerce play has seen major deterioration. No longer crushing it thanks to pandemic tailwinds, WISH is now struggling to adapt to the new online retail landscape.
ContextLogic has lost much of its appeal among meme traders buying more on hope, hype and momentum. That’s mostly because WISH is no longer a short-squeeze play. So, with both Main Street and Wall Street uninterested in buying the stock, it’s going to take a while for WISH to start moving back in the right direction.
This is especially true considering that the company is set to still struggle well into 2022. ContextLogic admitted its turnaround efforts won’t start bearing fruit until nearly a year from now. So, why dive into WISH as it nears penny-stock levels? Consider this name as another high-risk, high-reward play that could see a dramatic reversal.
Of course, investors should tread carefully here. The company’s performance could get worse. But with the potential to zoom from under $5 back to $20-plus, it may not be a bad idea to take a small, speculative position in WISH stock today.
FREE REPORT: 17 Reddit Penny Stocks to Buy Now
Thomas Yeung is an expert when it comes to finding fast-paced growth opportunities on Reddit. He recommended Dogecoin before it skyrocketed over 8,000%, Ripple before it flew up more than 480% and Cardano before it soared 460%. Now, in a new report, he’s naming 17 of his favorite Reddit penny stocks. Claim your FREE COPY here!
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Thomas Niel 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.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.