Over the last 12 months the S&P 500 is up 32%, maintaining the torrid pace of growth that began in late 2022. Although only a literal handful of stocks accounted for most of the popular benchmark index’s gains last year, it is a slightly different story this time around. Something of a more broad-based rally is at play but there are plenty of big-name companies still trailing behind.
We’re almost a quarter of the way through the year and 8% of the 500 largest companies are down by double-digit percentages over the last three months. What follows, though, are three laggard S&P 500 stocks that could still rally in 2024. They are down more than 22% on average but just might go from zero to hero yet.
Tesla (TSLA)
Only two of the so-called Magnificent Seven stocks are still rocketing higher — though four of them continue to set new all-time highs. Tesla (NASDAQ:TSLA) is not one of them. In fact, the electric vehicle (EV) manufacturer is the worst-performing Mag 7 stock with shares down 32% over the last three months.
A large part of the problem is the slowing growth of the EV market. Despite a record 1.2 million EVs being sold in the U.S. last year and Tesla accounting for more than half (55%), the rate of growth is dropping. Fourth quarter sales were seemingly strong at 40% but that’s down from 49% in the third quarter, according to Cox Automotive. It is also well below the 52% growth notched in the year-ago period.
Price cuts are also hurting Tesla margins. Tesla automotive revenue was up just 1% in Q4 while adjusted EBITDA margins of 15.7% plunged by 652 basis points (bps). Operating margins were a dismal 712 bps lower.
Yet the Cybertruck made its debut late last year and CEO Elon Musk says it intends to ramp up production to 250,000 per year within 18 months. And Tesla said it was raising the price on its popular Model Y in the U.S. and Europe. Prices will go up $1,000 here on Apr. 1 and by 2,000 euros (approximately $2,177) overseas. Although China remains a problem, Tesla is confident enough to increase pricing on its best car with plans to introduce a new low-cost one next year.
Especially as the year wears on, we could see TSLA stock pop as these forces come together.
Nike (NKE)
Athletic apparel maker Nike (NYSE:NKE) isn’t often on the losing end of a stock trade but ever since the end of the pandemic “revenge shopping” trend, NKE stock has been on a long, steady slide. Shares are down nearly 18% in the past three months and are 44% below the November 2021 all-time highs.
What looked like a smart pivot to digital and direct-to-consumer sales channels now is a drag on performance. In the most recent quarter Nike said sales fell 1% year over year.
The problem is the athletic clothes retailer is facing more competition than ever. On Holding (NYSE:ONON) has become a trendy shoemaker as has Deckers Outdoor (NASDAQ:DECK) Hoka brand. Nike also feels pressure in athleisure and street wear from Lululemon (NASDAQ:LULU) and Adidas (OTCMKTS:ADDYY). Numerous digital-first startups want in, too.
NKE stock trades below its historical averages on earnings and sales. It is also well below the 10-year average for free cash flow. The stock should be nearing a trough, however. Nike looks to cut $2 billion in costs over the next three years suggesting shares could run higher once more.
Etsy (ETSY)
Etsy (NASDAQ:ETSY) is another pandemic-era darling that’s fallen on hard times. Shares are down 17% over the past quarter and off 36% for the last year. They are also a whopping 77% below their all-time high. The run-up in ETSY stock during the pandemic was caused by people scouring the website for masks. While that might have resulted in overblown gains, an argument can be made the sell-off is, too.
Sales of $2.7 billion are up an anemic 8% a year for the past two years. This is in contrast to the 36% gain during the Covid outbreak. Yet operating profits are strong at $280 million, a nice turnaround from last year’s $658 million loss. Etsy turned in earnings of $2.24 per share this year. With an activist investor now angling for a turnaround, ETSY stock is an interesting play.
Notably, Etsy produced $665 million in free cash flow (FCF) in 2023 well above pandemic-era levels. The stock trades at less than twice sales and 11 times FCF. That puts it firmly in bargain-basement territory and ETSY stock at a very attractive valuation.
On the date of publication, Rich Duprey did not hold (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.
