Every once in a while, I like to consider stocks to buy on the dip. For my purposes, these are companies whose shares have fallen by 10% or more in a week of trading.
This time last year, I recommended three stocks that had fallen by 10% or more in the previous week’s trading: Airbnb (NASDAQ:ABNB), PayPal (NASDAQ:PYPL), and Sonos (NASDAQ:SONO). They’ve gained 38.98%, 2.01%, and 6.13% respectively over the past year. If you bought an equal amount of each stock, you’d be up 15.71%, significantly less than the 26.64% gain of the S&P 500.
It’s a big reason buying the index isn’t a bad idea. Buying on the dip doesn’t work for every stock.
With that in mind, the three stocks to buy this May that fell 10% or more last week should have solid businesses and even stronger financial statements.
That’s not going to be easy. According to Finviz.com, 51 stocks with a market capitalization of $2 billion or more declined 10% last week. That’s less than 3% of the 1,921 eligible companies.
Alpha Metallurgical Resources (AMR)
Alpha Metallurgical Resources (NYSE:AMR) lost 13.73% over the past week. That puts it down more than 4% for 2024 but still up 26% over the past year.
Alpha operates 21 underground and surface coal mines in Virginia and West Virginia, selling its products to steel businesses in more than 25 countries worldwide. Its May 2024 presentation indicates that it has 303 million tons of coal reserves.
In 2023, the global demand for steel bottomed at 1.76 million metric tons. However, over the next two years, it’s expected to rise to 1.82 million, with a big push from India, which accounts for 37% of the company’s export sales.
In 2023, it produced 16.7 million tons of coal, generating $3.5 billion in revenue and $863.1 million in operating income. While this was down significantly from 2022, it still had an operating margin of nearly 25%.
As demand picks up, profits will also increase.
It trades at 10.1x its 2024 earnings-per-share estimate of $28.29 and 8.3x its 2025 EPS of $34.27.
Atkore (ATKR)
Atkore (NYSE:ATKR) lost 11.37% over the past week. That puts down over 4% for 2024 but is still up 26% over the past year.
Atkore makes electrical, mechanical, safety, and infrastructure products and solutions for nearly every type of construction application, from maintenance to entirely new structures.
Like many industrial companies, its sales have slowed in 2024 due to a return to more historically average product prices. As a result, its gross margin in Q2 2024 was 36.8%, 260 basis points lower than a year earlier. That reduced its adjusted EBITDA by 23.2% to $211.9 million, or 26.7% of its quarterly revenue.
For all of 2024, it expects adjusted EBITDA and adjusted EPS of $875 million and $16.50, respectively. Adjusted EBITDA will have fallen by 35% by the end of 2024 from $1.34 billion at the end of 2022, while its two-year decline in adjusted EPS is projected to be 23% lower than $21.50 a share at the end of 2022.
Interestingly, despite a market cap nearing $6 billion, only five analysts cover its stock. Four of the five rate it a buy with a target price of $190, 22% higher than where it’s currently trading.
It’s a diamond in the rough.
Builders FirstSource (BLDR)
Builders FirstSource (NYSE:BLDR) lost 14.73% over the past week. That leaves it up 1% for 2024 and 44% over the past year.
The company is one of the top suppliers of building materials in the U.S., with 570 distribution and manufacturing locations across 43 states. I first recommended BLDR stock in January 2022. Its business was so strong it had the opportunity to double in the year ahead. It failed to do so, more than making up for it in 2023, gaining 157%.
It’s possible 2024 could be another down year, with the economy returning to gains in 2025 when interest rates fall and new construction accelerates.
The company recently reported its Q1 2024 results. It beat the top and bottom lines with revenue of $3.89 billion, $67 million higher than the estimate, and EPS of $2.65, 35 cents higher than the consensus. Unfortunately, investors were disappointed in the results. Its shares fell 17% on the news.
That doesn’t make any sense to me, given it reiterated its 2024 revenue guidance of $18.0 billion at the midpoint, 5.3% higher than in 2023. However, it does project an adjusted EBITDA margin of 14.5%, 250 basis points less than in 2023.
Furthermore, it’s a sign the construction market overheated in 2022 and 2023. A return to more historical norms makes sense. Of the 16 analysts covering its stock, 11 rate it a buy, with a $205 target price, 23% higher than where it’s currently trading.
On the date of publication, Will Ashworth did not have (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 InvestorPlace.com Publishing Guidelines.
