While some investors prefer high-flying tech darlings, others seek “fallen angels,” or once-loved robust companies facing temporary challenges. With its shorter days and unpredictable weather, February can mirror the stock market’s volatility. Yet, for some beaten-down stocks, this season can serve as a fertile ground for potential growth.
Not all stocks have participated in the market rally of the past year, due to economic headwinds, industry shifts or even temporary setbacks. Yet, many industry strongholds possess long-term prospects waiting to be unlocked. Thus these three beaten-down stocks might be ready for a bounce back driven by key catalysts, appealing to value investors.
Deere (DE)
A leader in the agricultural machinery sector for 180 years, Deere (NYSE:DE) has seen its share price dip recently, in part due to the cyclical nature of its end markets, reduced demand in key markets and the company’s revised guidance.
Despite posting better-than-expected Q1 2024 results in mid-February, Deere saw a decrease in net income by 11% to $1.751 billion. Diluted earnings were down 5% to $6.23 per share, though cash reserves remained robust at $5.14 billion. The downward revision in the company’s 2024 earnings guidance reflected uncertainties in the market and delays in customer fleet replenishment. This revision sparked concerns about its future performance, leading to a subsequent decline in stock price.
However, investors shouldn’t dismiss Deere’s potential entirely. The company’s strategic investments, emphasis on technology and diversified operations position it well to navigate market fluctuations. This, coupled with the current discounted valuation, presents a potentially appealing long-term opportunity.
Long-term investors would be interested to know that DE stock has lost just over 10% year-to-date (YTD), while shares are trading at 13 times forward earnings and 1.9 times trailing sales. The 12-month median price forecast for DE shares is at $420, indicating an approximate 15% upside potential.
NextEra Energy (NEE)
NextEra Energy (NYSE:NEE) is a notable player in the renewable energy sector and a compelling utility investment choice among beaten-down stocks. Despite challenges in its renewable energy segment due to regulatory scrutiny, NextEra maintains steady earnings growth and stable dividend payments.
According to Q4 2023 results released in January, adjusted earnings came in at $1.067 billion, or 52 cents per share. These results show an improvement from 51 cents per share in the year-ago quarter. Cash and equivalents ended the period at $2.69 billion.
The utility group benefits from its regulated distribution network, via Florida Power & Light. Investments in renewables via NextEra Energy Resources bolster its position as a key player in the green energy sector. Utilizing this dual strategy, management targets strong financial results through 2026, maintaining a robust balance sheet and credit ratings.
NEE stock has declined almost 8% YTD, while shares are trading at 16 times forward earnings and 4 times sales. The average analyst price target for NEE shares is $71.5, suggesting a potential 25% upside from current levels.
Starbucks (SBUX)
Investors seeking beaten-down stocks may also consider coffee giant Starbucks (NASDAQ:SBUX) as another option. The global brand with a loyal customer base has faced valuation concerns due to fierce competition as well as macroeconomic uncertainty, especially in China.
Starbucks’ Q1 2024 results fell short of analysts’ expectations. The company reported an 8% revenue growth to $9.4 billion and earnings jumped 20% year-over-year to 90 cents per share. Amid geopolitical tensions impacting international sales and heightened competition in China, Starbucks’ second-largest market, the company revised its full-year guidance. Management projects revenue growth between 7% and 10%, down from 10% to 12%, although earnings-per-share (EPS) growth target remains at 15%-20%.
Meanwhile, the coffee behemoth has taken proactive measures to counter these challenges, including promotional efforts, price adjustments and product innovation. To increase foot traffic at its U.S. stores, Starbucks will be introducing three new flavor lines to attract Gen Z consumers and afternoon visitors.
Starbucks stock has dropped nearly 1% YTD. Shares are trading at 23 times forward earnings and 3 times trailing sales. The average analysts’ price target for SBUX shares is at $105, signaling roughly a 13% upside.
On the date of publication, Tezcan Gecgil 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.
