Beaten-down stocks do rebound. And often, the reversal is dramatic. Just look at Tesla (NASDAQ:TSLA). In the first half of the year, the electric vehicle maker’s stock was one of the worst performers in the benchmark S&P 500 index. But since the end of June, TSLA stock gained 44% and erased its previous loss on the year. And that big move higher occurred in just 10 trading sessions.
Similarly, Apple (NASDAQ:AAPL) staged a remarkable rebound in recent weeks. In the year’s first half, the company couldn’t do anything right and its stock badly trailed the overall market. Even Warren Buffett, a notorious Apple bull, reduced his stake in the company by 10%. However, AAPL stock bottomed in mid-April and has since risen 40%. It is now trading at an all-time high on a split-adjusted basis.
The point is that most stocks go through drawdowns. It is important not to panic and to hold on through the pullbacks or, better yet, see them as a buying opportunity. Here are three beaten-down stocks ready for a jaw-dropping rebound.
Nike (NKE)
All is not lost at sneaker giant Nike (NYSE:NKE). Investors who buy the stock now when it is down 33% on the year and trading at a 52-week low will likely be glad they did. NKE stock is unlikely to fall much further and is poised for a recovery as management undertakes a turnaround strategy at the athletic apparel company. Trading at 19 times future earnings, NKE stock hasn’t been this affordable in at least a decade.
The key problems at Nike have been sluggish sales in China and a failed strategy that had seen the company try to drive sales through its website and branded stores rather than through wholesalers and third-party retailers such as Foot Locker (NYSE:FL). However, Nike is working to shift course and make progress. Revenue from its wholesale channels rose 5% in the most recent quarter.
Nike is also in the process of cutting costs by $2 billion over the next three years. Plus, Nike continues to have a strong brand and a commanding global market share of nearly 40%. In time, NKE stock will rebound.
Walt Disney Co. (DIS)
It seems to be a case of one step forward, two steps back for shares of Walt Disney Co. (NYSE:DIS). Disney’s stock began the year with a nice rally. Unfortunately, it stalled at the end of the first quarter. Since then, DIS stock declined 22%.
Worse, the stock has become a long-term laggard. Over the past five years, the company’s share price declined 33%. No wonder activist investors are targeting Disney’s management team.
The good news is that Disney appears to be turning a corner, and a sustained rebound in its share price could come soon. The company reigned in spending on content for its Disney+ streaming platform, announced that it is spending $60 billion on its parks division over the next 10 years, and is partnering with other entertainment companies to bundle their streaming services and combine content.
It might take time, but when DIS stock finally rebounds, it will likely be jaw-dropping.
Starbucks (SBUX)
Coffee chain Starbucks (NASDAQ:SBUX) is another iconic brand whose stock has been beaten down to a 52-week low. Currently, SBUX stock is down 22% this year and is trading 19% lower than it was five years ago.
Buying the dip while the share price is at its lowest point in a year might be wise, particularly for investors with a long time horizon.
Admittedly, Starbucks’ first-quarter financial results were a disaster. Worse, the company lowered its forward guidance, and management said that its coffee shops will likely continue underperforming for several more quarters.
That said, there is a glimmer of hope for SBUX stock. Late last year, the company unveiled details of a strategic plan that will see the retail coffee chain open 17,000 new locations by 2030 while cutting $3 billion in costs. The company has also begun labor negotiations with its unionized stores.
This all makes Starbucks a beaten-down stock to buy on the dip.
On the date of publication, Joel Baglole 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
