A time-honored strategy for investment success is to buy low and sell high. In many cases, this means buying quality stocks that are underperforming the market. This is because companies and sectors that lag the market over a period of time often bounce back sharply when economic conditions change.
However, that's not the only way investors may decide if a stock is undervalued. They may look at a stock that is underperforming in its sector. While this can be a risky strategy, there are opportunities to find overlooked gems that are ready to bounce back.
In other cases, it may mean being contrarian and investing in stocks that may look overvalued. However, there are many examples of stocks that are outperforming the market but are good candidates to buy on any dip.
In this special presentation, we're offering you seven stocks that look like bounce-back candidates in the second half of 2023 and perhaps for longer than that. If you have a long-term outlook, these are stocks to consider adding to your portfolio now.
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- Qualcomm
- Johnson & Johnson
- Pfizer
- Ulta Beauty
- Ford Motor
- Sunrun
- NextEra Energy
#1 - Qualcomm (NASDAQ:QCOM)
The semiconductor sector is notoriously cyclical. And that’s been on full display in the last few years. In 2021, chip stocks soared on anticipation of higher demand. However, they dropped sharply in 2022 as supply chain issues curtailed supply.
While many of these stocks are bouncing back in 2023, Qualcomm Incorporated (NASDAQ: QCOM) has lagged behind. And not without reason. Revenue and earnings in the first two quarters of the year are down on a year-over-year basis. This is attributed to the company’s significant reliance on the mobile device and PC markets, both of which are reporting slowing sales.
But there’s reason for optimism. Qualcomm chips dominate the automotive market with an impressive 80% market share. And with relationships with most major car manufacturers, that dominance is unlikely to change.
Currently, that revenue only accounts for about 5% of the company's top line. But it was up 20% in the most recent quarter and will likely continue to grow. Add in possible gains from artificial intelligence (AI) and the internet of things (IoT) and you can see why Qualcomm is an undervalued stock that could bounce back in a big way.
About QUALCOMM
QUALCOMM Incorporated engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on 3G/4G/5G and other technologies for use in wireless voice and data communications, networking, computing, multimedia, and position location products.
Read More - Current Price
- $154.27
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 12 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $210.15 (36.2% Upside)
#2 - Johnson & Johnson (NYSE:JNJ)
Johnson & Johnson (NYSE: JNJ) stock is down approximately 10% in 2023. This is despite the company putting its long-running talc lawsuit behind it. Some of this may be attributable to investors adopting more of a risk-on mindset and moving away from safe-haven sectors.
Speaking of safe-haven sectors, one concern could be that JNJ has spun off its consumer products division. Kenvue, Inc. (NYSE: KVUE) debuted in May 2023. That still leaves Johnson & Johnson with its pharmaceutical and medical devices businesses.
However, on the pharmaceutical front, investors may be concerned that the company has started to lose patent protection on Stelara. However, a patent thicket around the drug means that the company will retain patent protection on Stelara for specific indications for several years to come.
In that time, the company’s pipeline is likely to begin delivering additional revenue for investors. And while you wait, you get a dividend that currently has a yield of 2.99%. And JNJ is a dividend king that has increased its dividend in each of the last 62 years.
About Johnson & Johnson
Johnson & Johnson, together with its subsidiaries, researches, develops, manufactures, and sells various products in the healthcare field worldwide. The company's Innovative Medicine segment offers products for various therapeutic areas, such as immunology, including rheumatoid arthritis, psoriatic arthritis, inflammatory bowel disease, and psoriasis; infectious diseases comprising HIV/AIDS; neuroscience, consisting of mood disorders, neurodegenerative disorders, and schizophrenia; oncology, such as prostate cancer, hematologic malignancies, lung cancer, and bladder cancer; cardiovascular and metabolism, including thrombosis, diabetes, and macular degeneration; and pulmonary hypertension comprising pulmonary arterial hypertension through retailers, wholesalers, distributors, hospitals, and healthcare professionals for prescription use.
Read More - Current Price
- $153.10
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 8 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $175.94 (14.9% Upside)
#3 - Pfizer (NYSE:PFE)
Pfizer Inc. (NYSE: PFE) is another undervalued stock in the biotechnology sector. Pfizer stock soared in 2020 and 2021 as the company generated revenue from its Covid-19 vaccine and its Paxlovid therapeutic. Revenue from Covid-related sales peaked at around $100 million in 2022.
Even with those revenues declining, Pfizer is forecasting revenue of around $68 billion in 2023 and 2024. That’s significantly higher than the revenue the company was generating five years ago. But that’s not reflected in the stock price.
Pfizer has approximately 19 pipeline candidates that could receive FDA approval in the next 18 months. And the company recently bought a stake in Caribou Biosciences, Inc. (NASDAQ: CRBU) a gene-editing company. Pfizer will be helping to get Caribou’s pipeline candidates through the clinical trial stage.
The bottom line is that many investors have Pfizer on their personal “do not buy” list. That’s fair, but simply from the standpoint of looking for bounce-back stock candidates, it’s tough to argue with the opportunity in PFE stock as it trades for just 7x earnings and has a dividend yield of over 4.5%.
About Pfizer
Pfizer Inc discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products in the United States, Europe, and internationally. The company offers medicines and vaccines in various therapeutic areas, including cardiovascular metabolic, migraine, and women's health under the Eliquis, Nurtec ODT/Vydura, Zavzpret, and the Premarin family brands; infectious diseases with unmet medical needs under the Prevnar family, Abrysvo, Nimenrix, FSME/IMMUN-TicoVac, and Trumenba brands; and COVID-19 prevention and treatment, and potential future mRNA and antiviral products under the Comirnaty and Paxlovid brands.
Read More - Current Price
- $24.95
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $32.92 (32.0% Upside)
#4 - Ulta Beauty (NASDAQ:ULTA)
Ulta Beauty, Inc. (NASDAQ: ULTA) is up 19% in the last 12 months, but it’s only up 1% in 2023 as of July 17. Investors reacted harshly to the company’s most recent earnings report.
On the surface, the report was okay with the company posting a beat on both its top and bottom lines. However, the company’s guidance was weak based on weakening makeup sales trends and low-priced competition.
But a closer look should comfort investors about investing in ULTA stock. The company is far more profitable today than it was prior to the pandemic. Part of that is due to the company focusing less on opening new stores and more on partnerships with companies like Target Corporation (NYSE: TGT).
Another bullish catalyst may also come as more employers are beginning to be more insistent on workers coming back to the office.
About Ulta Beauty
Ulta Beauty, Inc operates as a specialty beauty retailer in the United States. The company offers branded and private label beauty products, including cosmetics, fragrance, haircare, skincare, bath and body products, professional hair products, and salon styling tools through its Ulta Beauty stores, shop-in-shops, Ulta.com website, and its mobile applications.
Read More - Current Price
- $343.26
- Consensus Rating
- Hold
- Ratings Breakdown
- 12 Buy Ratings, 10 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $420.71 (22.6% Upside)
#5 - Ford Motor (NYSE:F)
Ford Motor Company (NYSE: F) is up 22% in 2023, which makes it an odd candidate as a bounce-back stock. However, if you look at F stock through a wider lens, you know that the stock is down nearly 50% from its January 2022 highs. At that time, the stock was trading for over $25 per share, a level the stock hadn’t seen for nearly 20 years.
In 2021, Ford was a beneficiary of the EV bubble. The automaker has been a long-time advocate for electrification and has recently doubled down on its commitment to producing an all-electric fleet of vehicles.
One of the centerpieces of the company’s near-term strategy is its F-150 Lightning EV truck. Ford stock is down nearly 5% on the announcement it was cutting the price of the truck between $6,000 and $9,900 depending on the model purchased.
But this could be an example of when selling the news creates an opportunity. The company is cutting the price of the EV based on lower production costs, not a lack of demand. This doesn’t remove all the obstacles that are in the way of mass adoption for EVs, but it’s a step in the right direction.
In theory, any production savings should go to the bottom line. Investors will know more when the company posts earnings in late July. In the meantime, at approximately 8x forward earnings, F stock looks like a good bounce-back stock in the beaten-down EV sector.
About Ford Motor
Ford Motor Company develops, delivers, and services a range of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide. It operates through Ford Blue, Ford Model e, and Ford Pro; Ford Next; and Ford Credit segments. The company sells Ford and Lincoln vehicles, service parts, and accessories through distributors and dealers, as well as through dealerships to commercial fleet customers, daily rental car companies, and governments.
Read More - Current Price
- $10.73
- Consensus Rating
- Hold
- Ratings Breakdown
- 3 Buy Ratings, 10 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $12.02 (12.1% Upside)
#6 - Sunrun (NASDAQ:RUN)
Sunrun Inc. (NASDAQ: RUN) is one of the leading providers of residential solar panels and energy storage solutions in the United States. Yet, despite the incentives being touted by the Biden administration, RUN stock is down 11% in 2023.
A quick look at the company’s financials shows that revenue is increasing on a year-over-year basis. Unfortunately, the same can’t be said for earnings. And while the company is forecast to post a narrower loss in 2023 than in 2022, its earnings are not expected to be positive.
The company is also heavily shorted. As of July 2023, short interest was around 16.5% of the publicly traded float. However, that does mean the stock could be a candidate for a short squeeze if the company’s revenue and earnings impress.
Sunrun is undoubtedly the most speculative stock on this list, but it’s one the analysts love. Sunrun analyst ratings on MarketBeat give RUN stock a Moderate Buy rating with an upside of over 37%.
About Sunrun
Sunrun Inc designs, develops, installs, sells, owns, and maintains residential solar energy systems in the United States. It also sells solar energy systems and products, such as panels and racking; and solar leads generated to customers. In addition, the company offers battery storage along with solar energy systems; and sells services to commercial developers through multi-family and new homes.
Read More - Current Price
- $10.20
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $20.12 (97.3% Upside)
#7 - NextEra Energy (NYSE:NEE)
After being one of the stock market winners in 2022, the energy sector is still one of the more beaten-down sectors in 2023. That could be changing as the supply-demand fundamentals for oil prices are tilting in favor of higher prices.
If that’s the case, NextEra Energy Inc. (NYSE: NEE) looks to be a compelling choice as a bounce-back stock. NEE stock is down 12% in 2023 which is almost double the stock’s 6.8% loss over the last 12 months.
But the bullish case for NEE stock remains as clear as ever. To begin with, the company is the largest electric utility holding company in the United States. And it services nearly half of the state of Florida. That ensures long-term revenue and earnings consistency.
But the larger growth opportunity comes from NextEra’s focus on renewable energy. And this includes projects that are generating green energy today.
About NextEra Energy
NextEra Energy, Inc, through its subsidiaries, generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. The company generates electricity through wind, solar, nuclear,natural gas, and other clean energy. It also develops, constructs, and operates long-term contracted assets that consists of clean energy solutions, such as renewable generation facilities, battery storage projects, and electric transmission facilities; sells energy commodities; and owns, develops, constructs, manages and operates electric generation facilities in wholesale energy markets.
Read More - Current Price
- $76.87
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $86.54 (12.6% Upside)
If there's one thing that should be clear when it comes to buying undervalued stocks, it's that you have to be in the game. Many investors make the mistake of sitting on the sidelines waiting for the “right" moment to invest in a particular stock or stocks.
That strategy can help you sleep at night. But it also may cause you to miss out on some market-beating gains. The market doesn't announce when it's going to flip. And if you're not positioned in a particular stock when it starts to run, you'll likely miss out on the largest gains.
However, for a variety of reasons, you may not have room in your portfolio for a particular stock right now. That's why having one or more watchlists is critical. MarketBeat has several tools that let you keep track of multiple watchlists. And these tools include getting real-time updates on news that affects these stocks.
It's a great way for you to keep informed on these stocks. And if you have a particular price target in mind, this strategy can help you get in at the right time.
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