5 distressed stocks to buy at a discount

The year got off to a rocky start for many leading stocks. I’m talking about companies whose attributes could match future performance, such as solid revenue or earnings growth, market leadership, and customer loyalty.

It can be tempting to buy the best performing stocks and avoid the struggling ones. But often these unlucky players represent tomorrow’s winners. And the good news is that today we can get them at a great price. Let’s look at five distressed stocks to buy at a discount right now. They have each posted double-digit percentage losses since the start of the year.

Image source: Getty Images.

1. Modern

It’s hard to imagine the coronavirus vaccine giant Modern (NASDAQ:ARNM) discount trade. After all, the company has generated billions of dollars in revenue and profit over the past few quarters. And the biotech company says vaccine revenue for the year 2021 is expected to total $17.5 billion. Moderna also forecasts product revenue for this year of around $18.5 billion – and that figure could increase if the company signs more advance purchase contracts.

Still, the stock is trading at less than six times forward earnings estimates. At the same time, Moderna is working on 40 pipeline programs. If even a small number make it to market, Moderna and its investors could win big in the future.

2. Teladoc

Teladoc Health (NYSE: TDOC) is a leading provider of online medical visits. Business soared during the worst days of the pandemic. But even when doctors’ offices resumed normal operations, Teladoc’s growth continued. For example, third quarter revenue jumped 81% and online doctor visits increased 37%. Teladoc therefore shows that its success is not linked to the pandemic. People keep opting for his services.

Teladoc shares today trade at about six times the company’s sales. That’s down from over 24 a year ago. This is a boon given Teladoc’s growth prospects. The company projects a compound annual revenue growth rate of 25-30% through 2024. And its revenue target for the year 2024 is over $4 billion.

3. Nike

Nike (NYSE: NKE) has struggled with supply chain issues in recent months. Indeed, some factories have temporarily closed due to the pandemic. Otherwise, the company considers itself stronger than it was before the health crisis. The athletic footwear and apparel maker has grown its digital business and cemented its direct relationship with fans during the pandemic. And digital revenue continues to grow – by 12% in the last quarter. Cash levels increased by more than $3 billion to $15.1 billion. And the gross margin also increased. I also like the fact that free cash flow and return on invested capital are up.

Chart showing the increase in Nike's free cash flow and return on invested capital since the start of 2021.

NKE Free Cash Flow Data by YCharts

Nike is trading at around 39 times forward earnings estimates. That’s down from over 48 just three months ago. This is a deal for a company with the brand strength and financial strength of Nike.

A person's hands are typing something on a phone near a cup of coffee on a table.

Image source: Getty Images.

4.Starbucks

Starbucks (NASDAQ:SBUX) disappointed some investors as inflation, a tough labor market and higher costs weighed on earnings in the latest report. In fact, the coffeehouse giant has revised down its operating margin and earnings per share forecast for this year due to these factors. But these are temporary problems. And that means the recent declines represent a buying opportunity for the long-term investor. The stock is trading at 29 times forward earnings estimates, down from 39 in July.

Here’s why I’m bullish on Starbucks. The company says demand is increasing for all products and at all times of the day. Active Starbucks Rewards members in the US grew 21% to more than 26 million in the last quarter. And revenue rose 19% to a record $8.1 billion. Coronavirus restrictions are currently hurting growth in China – but again, this is a temporary situation. Starbucks now has more than 5,500 stores in this market. This should be a solid growth driver over the long term.

5.Etsy

Etsy (NASDAQ: ETSY) soared in the first year of the pandemic. Shoppers flocked to the online seller of handcrafted face masks and other products. But recently, Etsy has fallen out of favor with some investors. The problem is that the online retailer cannot repeat the triple-digit gross merchandise sales (GMS) and profit gains it posted during the worst of the pandemic.

It may be true. But Etsy still offers long-term investors a solid opportunity for growth. For example, in the last quarterly report, GMS grew over 17% to $3.1 billion. An important point: repeat buyers have increased by 65%. These frequent buyers are the fastest growing segment of buyers on Etsy. And recent acquisitions of a Brazilian online marketplace for handmade goods and a fashion resale marketplace add new growth drivers to the mix. Today, Etsy trades for just 33 times forward earnings estimates, up from over 80 just a few months ago. This is a great deal for the growth Etsy is likely to provide in the years to come.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

Comments are closed.