When seeking stocks in disrepair that could yield hefty returns, the focus often shifts to overlooked gems in the market. Yet, the most promising opportunities may lie in plain sight – demanding a contrarian outlook in the face of prevailing fear.
Back in mid-2022, investors clung to costly defensive stocks, shunning beaten-down tech equities and missing out on remarkable gains during the subsequent rebound. Today, numerous high-quality companies trade at tempting valuations, presenting a golden opportunity for patient, long-term investors. As preached time and again, snatching up outstanding enterprises at rock-bottom prices can pave the way for extraordinary returns over time. Though short-term losses may sting, history has shown that resilient businesses inevitably bounce back.
With that philosophy in mind, let’s delve into three tattered stocks that hold the potential for triple-digit upward movement within the next 12-18 months. These are stalwart companies unjustly penalized by Mr. Market. Let’s examine these potential gems deserving a closer look.
The Case for PayPal (PYPL)
PayPal (NASDAQ:PYPL), a standout fintech player, has weathered a rough patch in recent years due to the sector’s turmoil. The fintech industry took a hard hit when the COVID-induced surge receded, leading to a drop in online transactions. This slowdown was compounded by subsequent rate increases, making banks wary of fintech collaborations. The lending landscape turned arduous after banks started faltering in 2023, with rates hitting their peak.
Although PayPal witnessed a dip in monthly active accounts over the last few quarters, other performance indicators remain robust. The company sustains an impressive 8.7% annual revenue growth rate, healthy margin expansion, and a 52% surge in net income year-over-year to $1.4 billion in Q4.
With a track record of enhancing revenue from its loyal customer base, PayPal’s decline in active users may not be as dire as it seems. The company’s profitability has enabled significant share buybacks, including plans to repurchase $5 billion in shares by 2024. Trading at just 11 times forward earnings, PayPal emerges as an undeniable bargain offering the potential for exponential returns. Priced below $60 per share, PayPal presents one of the most appealing opportunities among tattered stocks.
Unveiling Alibaba’s (BABA) Potential
Amid China’s economic deceleration and a stringent regulatory crackdown on tech entities, Alibaba (NYSE:BABA) has taken a beating. The trauma created by this double whammy has dragged the Hang Seng Index down by 42.5% over five years – a decidedly bleak backdrop. Yet, hitting fresh lows, BABA shares may offer robust value with limited downside.
China’s recent interest rate cuts aimed at combating deflation suggest significant stimulus measures on the horizon. Such initiatives are likely to benefit established entities like Alibaba and JD (NASDAQ:JD). Notably, JD exceeded earnings per share forecasts by 18% and revenue expectations, fueling a remarkable 16% surge on its earnings outperformance. While Alibaba fell short of projections, a turnaround could be on the horizon.
Besides e-commerce, Alibaba’s cloud division shows promise. Slashing prices by up to 55% on selected cloud services to spur sales and gain market share against local AI rivals in China positions Alibaba for substantial gains from prevailing secular trends. With stocks deeply oversold, BABA emerges as a top contender among tattered stocks poised for profitability.
The Potential of JD.com (JD)
Trading at discounted valuations akin to Alibaba, JD.com presents an appealing investment opportunity. The Chinese e-commerce giant impressively increased revenue by 3.6% to $43.1 billion, reflecting signs of a revival in Chinese consumer activity. JD unveiled a new $3 billion share repurchase program through March 2027.
With China stimulating consumer spending, JD holds the promise of exponential growth in the years ahead. Lacking the regulatory baggage weighing down Alibaba, JD can operate more smoothly amid China’s evolving regulatory environment. Following a strong earnings beat, JD appears primed to capitalize on China’s gradual recovery fueled by economic stimulus. From current levels, substantial upside potential is foreseeable.
On the article’s publication date, Omor Ibne Ehsan had no direct or indirect positions in the securities referenced. The viewpoints expressed herein belong to the author and are subject to the InvestorPlace.com Publishing Guidelines.