If you like to buy stocks while they're down, you've got a smorgasbord of opportunities right now. Although the S&P 500 (SNPINDEX: ^GSPC) may have logged a gain of 28% in 2021, a slew of high-profile names managed to end last year deep in the red.
Simply stepping into a stock because it's cheaper than it was a year earlier, however, isn't necessarily enough of a reason. Sometimes a ticker suffers a well-deserved setback. Last year's biggest laggards may well be of that ilk, and headed for even lower lows as bad news turns worse.
2021's biggest losers
Most stocks made gains in 2021, for the record. Many of the ones that didn't, however, saw some serious losses.
Take Peloton (NASDAQ: PTON), for instance. While it was admittedly ripe for profit-taking following a bang-up 2020, shares fell a stunning 76% last year thanks to the slow return to normalcy — including gym visits — crimping demand for at-home fitness equipment.
A bunch of Chinese tech stocks, ranging from iQIYI (NASDAQ: IQ) to Bilibili (NASDAQ: BILI) to Tencent Music Entertainment (NYSE: TME), also lost ground. Like Peloton, all three of these stocks were vulnerable following incredible run-ups in the prior year. These exaggerated gains set the stage for setbacks of 74%, 46%, and 64% (respectively), though. The prompt? Continued regulatory crackdowns on China's technology companies, and online entertainment companies in particular.
It was a strangely tough year for biotech stocks too. While many names in the business benefited from the COVID-19 treatment and diagnostic market hitting its full stride in 2021, investors gravitated toward those names at the expense of others as the opportunities linked to the pandemic either gelled or unraveled.
Invitae (NYSE: NVTA) lost 63% of its value last year following a huge 2020, mostly on unexpected revenue headwinds for the diagnostics company. Iovance Biotherapeutics (NASDAQ: IOVA) fell 68%, largely spurred lower by less-than-thrilling results for its trial results for lung cancer treatment LN-145, although a couple of earnings misses earlier in the year hardly helped its cause. Shares of TG Therapeutics (NASDAQ: TGTX) fell similarly following myriad questions about the marketability — or even the approvability — of lymphoma and multiple sclerosis treatment umbralisib.
The rest of the story
Veteran investors know nothing lasts forever. That reality makes the seven stocks discussed here compelling purchase prospects. The bigger the sell-off, the better the bargain.
Stepping into a stock just because it ended a calendar year in the red, however, ignores important details for all seven names.
Take China's online entertainment outfits Tencent Music, iQIYI, and Bilibili as an example. While it seems there's little left for the country to do to its consumer-facing technology companies that it hasn't already done, never say never.
Representatives of the country's State Administration for Market Regulation publicly stated near the very end of 2021 that the agency intends to “strengthen supervision and law enforcement in key areas such as the platform economy, technological innovation, information security, and the protection of people's livelihood,” seemingly intent on setting the proper expectations.
President Xi Jinping has hinted of the same just within the past month, sending a political message, and perhaps inadvertently sending a warning that more of the same sort of crackdowns are in the cards. GFM Asset Management's Tariq Dennison told CNBC he fears the nation's clamp-down on its top tech names could last up to 30 years, even if regulators pare back their pressure during that stretch.
As for the aforementioned biotech stocks, Invitae is down 27% just since the end of last year, as is TG Therapeutics. Iovance Biotherapeutics shares are lower to the tune of 25%. If there was any turnaround in the offing, there's no evidence of it yet.
And as for Peloton, while its recent PR nightmare — being the fitness equipment that ultimately led to the death of fictional character “Mr. Big” on the rebooted Sex and the City television show now called And Just Like That — took a toll on the stock, the vast majority of last year's sell-off took shape before that debacle unfurled in December. This stock is off by 14% year to date, with a big chunk of that setback taking shape following reports that the company has hired consulting firm McKinsey & Co.
McKinsey's involvement loosely implies Peloton may be mulling a downsizing initiative, which in turn suggests demand may not be as firm as once expected. At the same time, price increases for setup and delivery of its exercise equipment are stoking fears that the company may be exacerbating its demand problem.
The thing is, there's nothing unusual about one year's problems lingering into the next year, or the year after that, or the year after that. Some challenges are cyclical and therefore short-term, while others are secular, lasting a long, long time… if not forever. The aforementioned challenges are arguably somewhere between being secular and cyclical, but at the very least that means this year could still be a tough one for these stocks, even if it's not as tough as 2021 was.
In other words, smart stock-picking is (still) about the true strength of the underlying company's prospects, near and far. These names don't really offer enough of either right now.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Invitae, Iovance Biotherapeutics, Inc., and Peloton Interactive. The Motley Fool recommends Bilibili, TG Therapeutics, and iQiyi. The Motley Fool has a disclosure policy.