Many investors are probably upset that the yields of the 10-year treasury bonds are trading around 5%. It’s true that higher bond yields do increases companies’ borrowing costs and make stocks less attractive. However, many economists and investors are saying that the 5% rate is not overly high. They also say it is primarily a result of the strong economy, rather than sharply elevated inflation expectations. For example, Moody’s Mark Zandi on Oct 22 wrote on X that, “The surge in rates hasn’t been fueled by high inflation or rising inflation expectations…No, the runup in long-term rates is due in good part to the economy’s resilience.” This optimsm is making many investors look at comeback stocks.
Zandi expects the economy to meaningfully slow this quarter. In my view, the latter scenario will create a “soft landing” situation that will help lower inflation and please investors. This will cause stocks to rise over the medium term. I expect many stocks that are down and out now will make big comebacks throughout the next year. Here are three names that are very well-positioned to become comeback stocks within the next six months.
Exact Sciences (EXAS)
On Oct. 22, Exact Sciences (NASDAQ:EXAS) reported that its “next-generation Cologuard test met all study endpoints, demonstrating 94% sensitivity for colorectal cancer (CRC) at 91% specificity.”
The findings show that the new Cologuard test is less likely to incorrectly diagnose a patient with colon cancer as being cancer-free. This is compared with the current Cologuard test. As a result of the improvement, doctors are more likely to prescribe the Cologuard test for their patients once the new diagnostic is introduced. That’s especially true because many patients have to wait months to undergo colonoscopies. That situation is likely to only become more acute as America’s population ages.
Moreover, on Oct. 20, EXAS disclosed that it would “present new data supporting the company’s research in early cancer detection, genomic testing and treatment guidance” during the week of Oct. 21. The announcement indicates that the data on both its “blood-based,” multi-cancer early detection test and its OncoExTra diagnostic tool were positive.
The data should bring the company much closer to generating huge amounts of revenue from these two tests. Furthermore, the company should save millions of lives and hundreds of billions of dollars globally throughout the long term. As investors internalize the huge potential of these tests, EXAS should become one of the Wall Street’s most impressive comeback stocks.
General Motors (GM)
Last quarter, General Motors’ (NYSE:GM) total deliveries jumped in the United States 21% versus the same period a year earlier. U.S. sales for the first nine months of 2023 soared 19% year-over-year.
Moreover, its EV deliveries soared an impressive 33% YOY, boding well for the automaker’s long-term outlook.
While the automaker’s sales are likely hurt by higher interest rates over the next year, I believe that its financial results will be better. I believe this given America’s strong employment market. I hold that view partly because many analysts have tended to underestimate the impact of the latter phenomenon on consumer spending.
What’s more, GM recently reported that it is making progress on its talks with the main U.S. auto workers’ union which is currently on strike. As a result, I believe that the dispute will be settled sooner rather than later.
GM stock is changing hands at a tiny forward price-earnings ratio of 4.3 times and has retreated 25% throughout the last three months.
Shoals Technologies (SHLS)
Goldman Sachs upgraded Shoals (NASDAQ:SHLS) to “Buy” from “Neutral” on Oct. 11. This was based on the company’s low valuation and ability to increase its gross margins going forward.
The bank noted that the company delivered an impressive gross margin of 42.4% in the second quarter, excluding a one-time warranty charge.
Goldman predicted that the company will be boosted by the issuance of regulations regarding solar tax breaks which are expected to be released by Washington by the end of the year. The bank placed a $28 price target on the shares, almost 100% above the $15.13 level at which the name closed on Oct. 20.
Moreover, SHLS stock has tumbled 43% throughout the last three months.
On the date of publication, Larry Ramer held long positions in EXAS and SHLS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
