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All Contents © 2019The Kiplinger Washington Editors
By James Brumley
| February 27, 2019
This year has been an unusually bullish one for U.S. stocks. Granted, the market started 2019 with the advantage of a steep selloff during the final three months of last year, setting up a big bounce out of an oversold condition. Traders remain confident at current levels, however, not flinching at the first whiff of potential trouble.
The S&P 500’s 15% advance from the late-December low hasn’t just put the broad market back into a bullish mode, however. It has yanked some stocks out of a rut and back into an uptrend as well. In many of those cases, that turnaround coincides with a fundamental turnaround from the company itself.
With that as the backdrop, here’s a rundown of the nine best U.S. stocks to plug into for a turnaround effort. All of them have made good forward progress, developing some momentum as a result. A closer read of their respective headlines also reveals the much-needed rhetoric has taken a turn for the better, reflective of fresh profit growth, sales growth or both.
In no particular order…
Prices and data are from the original InvestorPlace story published on Feb. 12. Click on ticker-symbol links in each slide for current prices and more.
Some investors had altogether given up on Snapchat parent Snap (SNAP), convinced there just wasn’t room for a third social media name in an environment that included Facebook (FB) and Twitter (TWTR). SNAP stock, between its February 2017 high hit shortly after its IPO and its low in December of last year, lost more than 80% of its value, while slowing user growth finally turned negative in the middle of 2018.
A glimmer of hope started to shine during the final quarter of last year. Its daily user total stabilized, and the habitual losses finally began to shrink.
It’s far from an ironclad turnaround, but it has been enough to spark over a 70% rebound from its December low.
Like Snap, beauty company Coty (COTY) is a name many investors had given up on. Shares fell 80% between early 2016 and the end of last year, mostly in response to an uninterrupted streak of declining revenue and shrinking profits.
It’s another name, however, that may have turned a corner nobody was expecting it to. COTY stock is up nearly 80% since its late December low, with most of that gain spurred by last quarter’s revenue and earnings. Both topped estimates.
Bonus: Several new executives—including a new CFO—have been named, setting the stage for some much-needed change in how the organization is managed. Bolstering the bullish argument is this week’s report that JAB Holding Co. is looking to take on a major equity stake in COTY stock at its current price.
Yes, the name behind popular casual gaming titles like Farmville, Words with Friends and Mafia Wars is still alive and kicking, even though its top games have largely run their course. In fact, Zynga (ZNGA) CEO Frank Gibeau recently stated, “Zynga’s turnaround is now complete,” referencing last year’s 5% improvement in revenue, leading into more earnings growth for this year.
The key has been a successful transition to mobile. Mobile engagement now make up more than 90% of game-play sessions, and Zynga has made a point of developing or acquiring the right games to engage players where they want to play. Its purchase of Gram and Small Giant gave it Merge Dragons and Empire of Puzzles, respectively, and both have been needed hits.
ZNGA stock is up 24% year-to-date after a lackluster 2018.
Courtesy Nektar Therapeutics
Despite Tuesday’s 9% setback, Nektar Therapeutics (NKTR) shares are still up over 25% for the year so far, unwinding what has been a pretty miserable past few months.
The stock’s budding turnaround was largely prompted by hope for major progress this year. At the J.P. Morgan Healthcare conference held very early this year, Nektar announced several ambitious goals for the year, including the potential release of an abuse-deterrent opioid painkiller.
Investors also gave the company a little credit for the launch of a couple early-stage trials of autoimmune drug NKTR-358, which has drawn the interest of Eli Lilly (LLY). Though its NKTR-214 looks to be a bust as a means of improving PD-1 treatments, the market may be thinking it treated NKTR stock too harshly in response.
Copart (CPRT) isn’t exactly a household name, though it may have a place in some portfolios.
The company is predominantly an automobile auction outfit, able to handle sales of fleet vehicles as well as it can offload cars for individuals. It’s especially well known as a buyer of junked or un-drivable cars and a seller of salvageable parts.
It’s an interesting business. Whereas automobile manufacturers like Ford Motor (F) or General Motors (GM) are now facing the downside of 2015’s so-called “peak auto,” in many regards that’s proven beneficial for Copart. The cars those drivers replaced had to be dealt with somehow, and given that most of Copart’s auctions are consigned auctions, the company has a plentiful, low-to-no cost supply of inventory. Mostly though, it’s a non-cyclical business that’s expected to grow revenue by 10% this year.
CPRT stock may only be up about 10% so far this year, but it was one of the hardest-hit U.S. stocks during the fourth quarter. That leaves plenty of room for more recovery.
Courtesy Dentsply Sirona
Dentsply Sirona (XRAY) is a manufacturer of equipment and supplies for the dentistry industry … a boring lineup that has been reasonably consistent (even if not perfect) in terms of revenue growth.
That reliability did the stock little good for the better part of last year. Between its January high and October low, XRAY stock was cut in half, primarily due to deteriorating revenue and profits that most investors didn’t expect. By the time all was said and done, shares reached a seven-year low in the latter part of last year.
Though some degree of selling was certainly understandable, the bears arguably overshot. The 26% rebound since the end of October says investors are correcting their mistake in front of what should be a turnaround year. Analysts are only calling for about 2% sales growth in 2019, but that should be enough to improve per-share profits by 11%.
Courtesy Proshob via Wikimedia Commons
There was a time not too long ago when investors and consumers were wondering if Chipotle Mexican Grill (CMG) would ever shrug off the impact of its 2015 E. coli debacle. Consumers were anything but quick to forget and forgive.
Last quarter’s results, however, suggest the new mix of management may be just what the struggling Tex-Mex eatery needed. Same-store sales improved 6.1%, while total revenue grew 10% thanks to store openings. Perhaps most compelling of all, however, was the earnings beat. Analysts were calling for a profit of $1.37 per share, but Chipotle reported income of $1.72 per share.
There’s still work to be done, to be sure. But, the work that’s been done so far has been enough to drive CMG stock to a 40% gain since the end of last year.
Courtesy Bausch Health Companies
Bausch Health Companies (BHC) has had a surprisingly tough past three years, although most of that pain played out while it was still called Valeant Pharmaceuticals … the company that racked up too much debt buying small-market drugs only to find political and societal pushback on its aggressive pricing policies at the worst possible time. With the proverbial party abruptly coming to a close in late 2015, Valeant shares lost roughly 97% of their value between July of 2015 and mid-2017.
It’s curious though. With very little fanfare despite measurable (albeit slow) fiscal progress, BHC stock has made nothing but higher lows and higher highs since the middle of 2017.
The 47% gain from its December low is exaggerated thanks to the steep pullback preceding that reversals, but the bullish high-low pattern has become pretty reliable.
By the middle of 2017, the athletic apparel industry—and the athletic shoe industry in particular—was in trouble. Celebrity endorsements had become gratuitous and expensive, peaking right as consumers grew tired of paying big prices just to wear the same sneakers that stars like Kevin Durant and James LeBron James wear.
Mike Packer, owner of Packer Shoes, explained the then-brewing dilemma a year earlier, saying, “Over the last two years, companies have taken retro basketball and in-line product and spun off too many colors, too many stories. … Some of these models are being brought to market for their third or fourth time. It loses the allure.”
The shift took its toll on Foot Locker (FL) stock. Shares tumbled more than 60% in 2017.
Things have been different in the meantime, however. Realizing it has to get back to basics and work strategically with key suppliers like Nike (NKE), the retailer has hammered out enough improvements to drive a 20% gain from its December low. That latest bullish leg extends a quiet winning streak that now goes back a full year.
This article is from James Brumley of InvestorPlace. As of this writing, Brumley held a long position in Foot Locker.
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