Top stocks to watch near 52-week lows.
There’s an old investing adage that it’s never wise to catch a falling knife. That’s not bad advice. A lot of stocks that plunge never end up making a full recovery. That said, there is appeal to grabbing a stock that’s down sharply to catch a quick bounce. Sometimes, even high-quality companies end up on the 52-week-low list, giving investors a chance to get entries at attractive prices. While prudence is always recommended when dealing with stocks in free fall, that’s often where the bargains are, as well. The recent regulatory crackdown in China and sell-offs in some tech stocks have created particularly compelling opportunities in these stocks near 52-week lows.
Tencent Music Entertainment Group (ticker: TME)
Tencent Music has gone from bad to worse. Shares of the streaming music company were already in a tailspin as Archegos Capital shut down unexpectedly earlier this year. Archegos had owned a huge leveraged position in Tencent Music, leading to a massive decline as banks liquidated Archegos’ holdings. Subsequent to the Archegos’ implosion, Tencent Music fell an additional 50% as the Chinese government has cracked down on tech companies. The government has taken a close look at parent Tencent, along with other tech companies involved in online gaming. In theory, media firms such as Tencent Music could also get caught in the crossfire. That said, Tencent Music has fallen from $30 to less than $8. It now trades at less than 15 times next year’s estimated earnings, and analysts expect nearly 20% revenue growth in 2022. That’s a huge bargain if the Chinese regulatory crackdown ever ends.
Spotify Technology SA (SPOT)
Speaking of streaming stocks, it’s been a rough year for many of them. 2020 was a once-in-a-decade opportunity for firms in that field to gain new subscribers. Consumers had extra stimulus money and unprecedented amounts of free time. That advantage has turned into a roadblock as now the streaming companies are facing difficult comparisons to last year’s lofty numbers. Spotify’s latest quarter underwhelmed. Its overseas growth slowed as it limited marketing spend in certain markets hard-hit by the pandemic. Additionally, it’s taking time to ramp up its revenues from the company’s controversial move into the podcasting arena. However, for investors that still believe in Spotify’s core music business, shares are now offered at a fat discount to where they traded six months ago.
C3.ai Inc. (AI)
C3.ai shares have plunged about 75% since their peak in December 2020. AI stock finds itself scraping not just 52-week but also all-time lows. C3.ai is a bet on CEO Thomas Siebel, whose previous company, Siebel Systems, helped create the field of customer relationship management software. He eventually sold the company to Oracle Corp. (ORCL) for almost $6 billion in 2006. In 2009, Siebel founded C3.ai to focus on AI-powered enterprise software. C3.ai initially concentrated on the energy industry but has branched out and now counts the U.S. Air Force, Royal Dutch Shell Plc (RDS) and 3M Co. (MMM) among its key clients. In other words, there’s a good case that C3.ai is a less-discovered and much cheaper alternative to meme trader favorite Palantir Technologies Inc. (PLTR). C3.ai’s revenue growth slid during the pandemic as it has a lengthy sales process and wasn’t able to close big deals in 2020. However, shares could bounce back quickly once the company announces some sizable new clients.
Wix.com Ltd. (WIX)
Website software developer Wix’s shares lost about a third of their value in the first half of August, following the company’s second-quarter earnings report. Wix beat estimates for both revenue and earnings, but its guidance was below expectations. It appears that the economic reopening has taken the wind out of the sails of many tech companies tied to e-commerce. However, Wix’s pullback is steep enough to justify buying the correction. After all, the company picked up a ton of new subscribers during the pandemic who should remain loyal in coming years. While Wix’s growth numbers will slow in a more normal economy, it has already reached a critical mass of subscribers, which should allow it to become a steady cash flow machine in coming years.
Paysafe Ltd. (PSFE)
Paysafe is leading payments company. It allows consumers to pay for online services such as gaming, subscriptions, software and money transfers. Paysafe has leading options in digital wallets and eCash. It’s already a large business, on pace for $1.5 billion in revenue this year. The company recently came public via a special purpose acquisition company, or SPAC. That’s where the trouble starts. Numerous SPACs have engaged in dubious behavior, such as Nikola infamously rolling a truck down a hill to give off the impression of having a working prototype. Furthermore, a number of SPACs have missed earnings badly or slashed guidance this summer. As a result, many investors are dumping all their SPAC positions indiscriminately. That could be an opportunity for Paysafe. The company just topped earnings and revenue expectations in its most recent quarter but offered soft guidance. Shares plunged 16%. However, Paysafe is still a higher-quality SPAC and has the involvement of financial industry legend Bill Foley. For investors not afraid of SPACs, Paysafe is a strong choice at today’s prices.
Boston Beer Co. Inc. (SAM)
Boston Beer Co., known for Sam Adams Lager, has plunged from $1,300 to the low $600s per share since April. But don’t feel too bad for America’s largest craft brewery. Shares are still up more than 200% over the past five years. However, the stock has gone flat this year as its Truly Hard Seltzer suddenly lost sales momentum in spring. It seems that the beer companies simply launched too many lines of seltzer, flooding the market. Boston Beer has seen this pattern before. Between 2015 and 2017, SAM stock lost half its value when its Angry Orchard cider ran out of juice. Then its pivot to seltzer sent the stock soaring. If management can come up with another big product, it can overcome the seltzer problem. What could be the next big trend for Boston Beer? One possibility is the company’s newly formed partnership with PepsiCo Inc. (PEP) to launch Hard Mountain Dew.
Miniso Group Holding Ltd. (MNSO)
Miniso is a Japanese-style retailer that offers trendy specialty products at discounted prices. Leading categories include plush toys, kitchenware, electronics, gifts and cosmetics. Miniso is not a well-known retail name in the U.S. yet, as it has just a couple dozen American stores, primarily in California. However, the company has already reached more than 4,000 locations internationally. The pandemic and weakness in mall traffic have given Miniso the opportunity to acquire attractive new locations at reasonable rents, supercharging the firm’s expansion. Miniso hails from China, and thus the stock has gotten caught in the general malaise affecting companies from that nation. Also, the company is not yet meaningfully profitable. However, given its rapid growth, analysts see it delivering earnings per share of 80 cents in 2023. That would put the stock at just 16 times 2023 earnings.
Beaten-down stocks to watch this fall:
— Tencent Music Entertainment Group (ticker:TME)
— Spotify Technology SA (SPOT)
— C3.ai Inc. (AI)
— Wix.com Ltd. (WIX)
— Paysafe Ltd. (PSFE)
— Boston Beer Co. Inc. (SAM)
— Miniso Group Holding Ltd. (MNSO)
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Update 08/18/21: This story was published at an earlier date and has been updated with new information.