At record lows, you can find undervalued gems that could be great comeback stocks. Investors have left these stocks for dead, and sentiment is overly negative. Any slight improvement in sentiment and fundamentals can send these stocks soaring.
Despite the S&P 500’s bull market since November 2022, some stocks have been in bearish runs. These stocks have been hitting all-time lows due to some idiosyncratic challenges. Worse, investor sentiment has hit record lows on these stocks, leading to a cascade of sellers pushing the stocks lower.
However, the selloff in these stocks is overdone. In other words, the pendulum has swung very far on the bearish side. Historically, extreme stock downturns can be breeding grounds for substantial gains in the future.
After steep selloffs, these comeback stocks are now trading materially below their intrinsic value. Moreover, with fundamental improvements on the horizon, there is a path for rising stock prices going forward.
Rivian Automotive (RIVN)
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Rivian Automotive (NASDAQ:RIVN) has been in a downward spiral due to several setbacks. Its delivery numbers have disappointed, forcing investors to dial back growth expectations. A slowdown in electric vehicle demand has also hit the entire industry.
Still, Rivian can be one of the best comeback stocks of the decade. Despite the recent slump in demand, Statista projects worldwide EV sales to grow 9.82% annually over the next four years. With states like California setting zero-emission vehicle requirements, the EV market will only expand.
Current demand headwinds plaguing the industry are temporary. Fortunately, Rivian is well-capitalized and has the partners to ride out this storm. As of Dec. 31, 2023, it had $9.37 billion in cash on its balance sheet.
Moreover, it has a strong partnership with Amazon (NASDAQ:AMZN), which also owns 16% of its stock. Amazon ordered 100,000 EV delivery vans and Rivian has delivered about 13,500 vans so far. Rivian will be able to sustain operations through these orders as it awaits consumer demand for its RI and R2 EVs.
As of this writing, Rivian’s market capitalization of $8.4 billion is lower than the cash on its balance sheet. Rivian is one of the top-rated EV makers and will be one of the winners in the EV supercycle.
Charter Communications (CHTR)
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Over the past year, fears of fixed wireless competition and fiber overbuilding have been a headwind for Charter Communications (NASDAQ:CHTR). The stock is 68% below its September 2021 closing high of $821 and could be among the greatest comeback stocks.
The main concern has been decelerating broadband subscriber growth amid increasing competition. Notably, subscriber growth has slowed to a low single-digit rate. However, the broadband provider has been able to push low single-digit price increases on its customers. Moreover, it’s experiencing record-low churn even with these price hikes.
One of Charter’s strengths has been its reliable free cash flow generation. With low single-digit subscriber growth and price increases, the firm can continue to grow revenue and cash flow. Broadband is still a utility in many households, and Charter is well-positioned as the largest cable TV provider, with 30.6 million residential and internet customers.
Over the long term, Charter’s broadband customers will grow, supported by the growth of the housing market and rural construction. At today’s price, you are paying a forward P/E of 8 and a double-digit free cash flow yield. Going forward, it can grow earnings at a mid-teens rate, offering upside.
Unity Software (U)
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Unity Software (NYSE:U) is mainly known for its game and metaverse development engine. Over the past year, managerial missteps, especially the controversial new fee policy, led to the stock’s implosion. However, due to its moat in mobile game development, it’s among the comeback stocks with massive potential.
Among mobile game developers, the Unity development toolkit is almost irreplaceable. After all, for a developer to switch to another platform, they must learn a new language. That means it has high switching costs since developers are unwilling to move and start from scratch.
Considering Unity is essential to the gaming industry, restructuring the business could reignite the stock. Interim CEO Jim Whitehurst is leading a strategic overhaul to deliver a leaner cost structure and better margin profile. In January, the company reduced its workforce by 25%, cutting 1,800 workers.
Furthermore, the company’s price changes led to 18% growth in the subscription business excluding China in Q4 2023. Management is optimistic that the new pricing changes and cost cuts will yield results. They expect revenues to accelerate in the second half of 2024 and margin improvements going forward.
These improvements, coupled with opportunities in advertising and XR headsets, spell substantial upside for U stock. Buy the stock before the turnaround takes shape.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the biedexmarkets.com.com Publishing Guidelines.