Just a few days ago, I made the point that beaten-down stocks weren’t inherently worth buying simply because they had lost much of their value. Sometimes, a stock’s down for good reason, with more downside to go.
There’s a flipside to this coin, however. That is, there are instances when a steep sell-off is indeed a mistake. These are buying opportunities, of course; the trick is just knowing the difference between the two scenarios.
With that as the backdrop, here’s a rundown of three Nasdaq Composite constituents that may be way down from their recent highs but are ready to rebound in a big way.
T. Rowe Price
The past few weeks have been tough ones for all investors, but they’ve been downright awful for shareholders of T. Rowe Price Group (NASDAQ: TROW). The stock’s down 26% for the year, and down a whopping 35% from November’s high. The sellers don’t seem like they’re done either. T. Rowe Price shares touched a new 52-week low on Monday of this week and have yet to even hint at a rebound since the rout began.
As the old adage goes though, it’s darkest before dawn. This mutual fund company’s stock is primed to reverse course (much) sooner than later — not despite the fact that this is an unexpected outcome but because of it.
The key to this brewing rebound is the way the mutual fund business works. While the chiefs of actively managed funds would obviously prefer to beat the market, that’s not really a prerequisite for generating profitable revenue. A fund’s revenue — the management expense — is solely a function of the amount of assets under that fund company’s management. As long as T. Rowe Price can attract and/or retain customers, its asset base continues to drive revenue.
This is an idea that’s seemingly been forgotten in recent weeks, with T. Rowe stock falling considerably more than the market itself has. As the dust from the recent selling starts to settle though, and this company rounds out its monthly asset reports with its next quarterly earnings report coming in April, don’t be shocked to see investors recognize their mistake. Indeed, odds are good the market will realize the mistake well before we get to April’s fiscal first-quarter report. You can jump in now while the dividend yield’s a healthy 3.3%, and the trialing price-to-earnings ratio is a below-average 11.0.
Intuitive Surgical (NASDAQ: ISRG) isn’t exactly a household name, though odds are good you or someone living in your household has heard of its flagship products. That’s the robotic surgical assistant called the Da Vinci. The cutting edge (literally and figuratively) device has helped surgeons perform more than 8.5 million operations since it was unveiled more than a couple of decades ago, minimizing the amount of cutting that would otherwise be required by more traditional surgery methods.
Don’t let its aging design fool you. It’s still a preferred tool in plenty of operating rooms, as the company continually updates the device as well as the types of tools it can utilize. The most current version of the technology called the Da Vinci Xi is a fourth-generation platform, and Intuitive Surgical continues to come up with new blades, staplers, and cameras that work with the surgery-performing tool. Analysts are collectively calling for revenue growth of more than 11% this year and 13% next year, which should drive per-share earnings up from 2021’s $4.96 to $5.92 for 2023. In light of this expectation, the stock’s year-to-date tumble of 21% doesn’t make a lot of sense.
Note that analysts’ consensus target still stands at $339.46, or 20% above the stock’s present price.
The knee-jerk selling of Etsy (NASDAQ: ETSY) shares since November’s peak makes a certain amount of sense… on the surface. The stock had rallied on the order of 1,000% from its March 2020 low, and it was already more than ripe for profit-taking. Once the market started to weaken late last year, this one was an easy name to decide to dump.
This is a case, however, where the market threw the proverbial baby out with the bathwater. Investors over-responded to Etsy’s overbought condition and the stock market’s sudden malaise. Etsy shares are now trading at less than half their highest price seen in November, and still within sight of the new 52-week low hit earlier this month. It’s a surprising scenario simply because the company is still calling for top-line growth of nearly 21% this year following what will likely be sales growth on the order of 33% for 2021 once those full-year figures are reported near the end of this month. Earnings growth is in line with those numbers.
Etsy is of course an online marketplace for crafty people who don’t quite sell the sorts of goods the crowd at Amazon.com is looking for. Handmade, artsy, one-of-a-kind items are its strong suit. The thing is, the company is still refining its platform at the same time consumers are increasingly embracing artisan-made products at the expense of mass merchandising. As of the end of September, Etsy boasts 5.2 million sellers and 89.4 million buyers, versus around 3.7 million and 69.6 million (respectively) just a year earlier.
The right time to buy rebound candidates
Again, not every sharp sell-off translates into a buying opportunity. Sometimes a big loss is an indication that a company is in serious trouble; it may also be an omen that more selling is in the cards. That’s not an absolute rule though. Other times, pullbacks are legitimate buying opportunities, as is the case with the three tickers in focus here. Your job as a bargain-hunting investor is simply looking through the noise of these sell-offs to identify their true nature.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Amazon, Etsy, and Intuitive Surgical. The Motley Fool has a disclosure policy.