- Buying any of these biggest loser stocks comes with serious risk, but the rewards could be worth it.
- Netflix (NFLX): Pivoting away from password sharing is risky but could pay off for the streaming giant.
- Shopify (SHOP): E-commerce could make a comeback as worker bees are called back into the office.
- Novavax (NVAX): One of the riskiest biggest loser stocks to buy, NVAX could storm back if the pandemic does.
- Ginkgo Bioworks (DNA): A much-maligned reverse merger, DNA is still compelling due to its bioengineering profile.
- Sonder (SOND): If revenge travel takes off, Sonder’s short-term-rental management business could be fire.
- Lottery.com (LTRY): Horrifically cynical, LTRY could rise if economic pressures cause desperation.
- Cazoo (CZOO): Another blank-check disaster, CZOO may have a comeback brewing due to the supply chain impact.
When legendary investor Warren Buffett once said to be fearful when others are greedy, and greedy when others are fearful, I’m not entirely sure he meant just jump on any old garbage idea that’s printing red ink.
In many if not most cases, when certain equities decline, there’s a reason for it. Nevertheless, the reward potential for riding the biggest loser stocks to a soaring comeback can be enormous. Under the current framework, highly speculative and contrarian ideas just might pan out. Primarily, the market has witnessed roughly two years of brilliant contrarian trading tactics.
From squeezing out the shorts through coordinated investments and diving heartily into the cryptocurrency sector, Wall Street has been forced to recognize the power of the retail investing masses. Thus, the concept of betting on the biggest loser stocks isn’t completely irrational.
An argument can be made that the biggest loser stocks already have all the negativity priced in. Although it’s not a scientifically proven phenomenon, the motivation for going contrarian is similar to baseball strategies.
The best managers just seem to know when their players — having gone through a dry spell — are “due” to go yard. Thus, it’s possible to hit one out of the park with these risky ideas.
All of the biggest loser stocks below are down at least 55% for the year. If you can handle the volatility, let’s get started.
I’m not going to lie, streaming giant Netflix (NASDAQ:NFLX) looks like it’s courting major trouble. Down 67% on a year-to-date basis, the company is reeling from the fact that, per its first quarter of 2022 earnings report, management revealed it lost subscribers for the first time in 10 years.
This report looks bad, both on a business-specific level and a macroeconomic view. The earnings print suggests that the idea of a robustly recovered consumer base is overstated at best. Many households are struggling enough to the point where they’re canceling their Netflix subscriptions.
Further, the company’s decision to crack down on password sharing — a practice it encouraged years ago — is very risky. The last thing you want to do is alienate your loyal subs and prospective members.
However, it’s a necessary business decision and Netflix could get away with it as a result of its original content.
According to the New York Times, “Physical stores beat online shopping in 2021. If you want confirming evidence, you might point to the performance of Shopify (NYSE:SHOP), which is down nearly 69% year-to-date.
Indeed, if anyone has been following e-commerce sales as a percentage of total retail, the disclosure shouldn’t come as a surprise. After peaking in Q2 2020, the share of online transactions has steadily declined.
On the surface, this doesn’t bode well for SHOP stock.
However, the pivot to brick-and-mortar shops could largely be a function of the work-from-home transition freeing up time for millions of people. As I argued for Barchart.com, however, work from home is likely ending.
During the initial wave of the Covid-19 crisis, vaccine developer Novavax (NASDAQ:NVAX) represented one of the greatest beneficiaries. Indeed, prior to the pandemic, Novavax was on life support, having failed to bring a viable solution to the market. But that changed with the SARS-CoV-2 virus, which sparked a race to find an effective vaccine.
Now, Novavax distinguished itself because of its proven subunit approach, whereby its heavy-hitting competitors like Pfizer (NYSE:PFE) adopted the messenger-RNA approach, a novel methodology in terms of commercialization (decades of research has gone into mRNA vaccines prior to Covid-19). Still, Novavax provided the comfort of familiarity.
Unfortunately, it hasn’t been enough since the big boys beat out Novavax. Nevertheless, it’s possible that the war against Covid isn’t over. For instance, I find it suspicious that the Chinese government is so desperate to rid itself of the coronavirus knowing full well what harsh lockdowns can do to economic performance.
Yet the latest information suggests Shanghai is still essentially under quarantine. It’s risky but the possible resurgence of Covid-19 could lift NVAX once again.
Ginkgo Bioworks (DNA)
Ginkgo Bioworks (NYSE:DNA), an innovative bioengineering firm, became tradeable to retail investors via special purpose acquisition company (SPAC).
An alternative to the traditional initial public offering (IPO), SPACs are publicly traded shell companies that merge with private enterprises, thus taking target businesses public through the backdoor.
The problem is, like most SPACs, Ginkgo has plain stunk up the market, shedding 57.5% year-to-date. About the only saving grace for DNA is that SPACs have greatly underperformed benchmark indices post-business combination. Moreover, it’s likely that investors viewed Ginkgo’s bioengineering clout as being more aspirational than practical.
I’m not going to sugarcoat the steep risks involved with DNA, but it might only take one major development from this “biology by design” enterprise to get shares flying.
From a cursory perspective, the narrative surrounding Sonder (NASDAQ:SOND) might not sound too appealing. The comappny has lost 59.5% year-to-date.
It manages short-term rentals such as apartment hotels, operating in North America, Europe and Dubai. However, against rising inflation that so far is only worsening, a non-essential business like Sonder seems suspect.
At the same time, analysts have been calling for a recession since the beginning of the Covid-19 pandemic. So far, they’ve been proven wrong.
More importantly for Sonder, it’s possible that revenge travel — or the concept that people are ready to open their wallets to make up for lost social experiences — could become a dominant theme in the broader consumer retail economy.
In that case, SOND could be one of the biggest loser stocks to turn things around. After being cooped up at home for roughly two years, people generally have lost their fear of Covid-19.
Lottery.com (NASDAQ:LTRY) is one of the more toxic stocks around. Games of chance disproportionately target disenfranchised communities, so LTRY won’t be an environmental, social, governance (ESG) play anytime soon.
People are gambling on the stock because some evidence points to people suffering from financial problems buying lottery tickets at a higher rate compared to those who didn’t suffer financially.
Therefore, if we encounter a global recession, LTRY could be among the biggest loser stocks to enjoy a reversal of fortune.
If you really want to dial up your speculative juices, British online car retailer Cazoo (NYSE:CZOO) might be up your alley.
As you know, used-car prices have gone through the roof. It’s not just an American phenomenon but a global one. Simply put, auto manufacturers are in short supply of critical commodities. Until this issue is resolved, demand may continue to outpace supply.
If that wasn’t bad enough (for car buyers), Russia’s uinvasion of Ukraine sparked an auto-centric supply chain crisis, per the Wall Street Journal. Although it’s grossly unfair, prices may be disassociated from reality for quite some time due to basic economic principles.
This circumstance isn’t entirely beneficial for CZOO. However, people still need their vehicles — high prices or not — thus making CZOO a risky comeback idea among the biggest loser stocks.
On the date of publication, Josh Enomoto 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.