Markets may be setting new highs these days, but not all stocks have participated in the recent rally. And while Wall Street usually has good reasons to push a stock lower, that pessimism can get out of hand at times.
Below, Motley Fool investors spotlight a few stocks they think have been unfairly beaten down lately. Read on to find out why Etsy (NASDAQ: ETSY), GameStop (NYSE: GME), and HCP (NYSE: HCP) could be poised for a rebounding share price.
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An unloved e-commerce play
Jeremy Bowman (Etsy): After trading north of $30 shortly after its 2015 debut, Etsy stock turned into a busted IPO, tumbling in its first months on the market as the crafty e-commerce company saw losses deepen amid slowing top-line growth.
While the stock has gradually regained much of those losses over the past two years, Wall Street analysts remain skeptical, as only three out of 12 analysts rate the stock a buy, with one rating it a sell and eight as a hold. On Wall Street, "hold" is often a euphemism for "sell."
The skepticism toward Etsy may be understandable given the company's struggles and competition from the likes of Amazon, but Etsy has a unique property and brand on the internet, selling handmade goods by artisans, and with its marketplace model, Etsy is in a position to make easy profits on transactions on its website. It's also no slouch in e-commerce as it's the fourth-most visited e-commerce website in the U.S. The company has been taking steps toward profitability under new CEO Josh Silverman, who took over last May and has implemented layoffs after activist investors took stakes in the company and demanded action.
Sliverman's changes, which included jettisoning many of the cushy perks Etsy employees were used to, have delivered results as revenue growth has accelerated and adjusted earnings have turned positive. Etsy's fourth-quarter report (out February 27) will be key in determining the company's next steps, but Wall Street appears to be underestimating the company's turnaround and potential.
Demitri Kalogeropoulos (GameStop): Just about every company associated with the video-game industry, from developers like Activision Blizzard and Take-Two Interactive, to hardware producers like NVIDIA, have seen their stocks soar lately. But Wall Street has come to the opposite conclusion on GameStop. It is down a brutal 40% since early 2017.
Never mind that the retailer recently logged its fastest sales growth of the year as holiday-quarter results jumped 12%. The boost put GameStop right on track to expand revenue by 5% in fiscal 2017 to mark a nice rebound from the prior year's 11% slump.
To be sure, the company is facing major profitability issues as its core video-game software segment shrinks. Its growing categories, meanwhile, including consumer electronics, generate weaker margins.
Yet this business is far from cash strapped. Earnings are on pace to dip to $3.25 per share this fiscal year, and that's down slightly from the prior year's $3.40 result. But those profits still easily enough to cover a dividend that right now yields over 9%. A yield that high signals that Wall Street sees very little value in this business. However, there's a good chance GameStop manages modest growth from here, even if its most profitable days are behind it.
An aging population deserves your attention
Neha Chamaria (HCP): HCP shares are down nearly 25% in the past six months, and even a 6.6% dividend yield isn't attracting investor attention yet. I think that's a mistake, and investors are perhaps missing the big picture.
To be fair, a couple of factors have stolen attention away from the healthcare real estate investment trust (REIT), including the company's move to reduce exposure to a key client, which is hurting its top line and cash flows. What appears to have spooked investors even more is the 36% cut in HCP's dividend in 2016.
It wasn't a dividend cut in the true sense of the word -- HCP's profit and cash flow shrank after it spun off its skilled-nursing and assisted-living facilities into a stand-alone publicly traded entity, Quality Care Properties, which reflected in lower dividends.
HCP's divestments, though, are helping the company strengthen its balance sheet, and its dividends are likely to rise in coming years as the company is required to pay out 90% or more of its net income to shareholders in the form of dividends as a REIT. Meanwhile, HCP should be able to cash in on increasing demand for healthcare from an aging population, thanks to its strong portfolio of assets that cover essential aspects of healthcare, including senior living, life science, and medical office. At a price-to-cash-flow of only 12 times, I think it's time Wall Street starts paying attention to HCP.
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Demitrios Kalogeropoulos owns shares of Activision Blizzard and GameStop. Jeremy Bowman has no position in any of the stocks mentioned. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard, Amazon, Nvidia, and Take-Two Interactive. The Motley Fool owns shares of GameStop and has the following options: short April 2018 $18 calls on GameStop. The Motley Fool recommends Etsy. The Motley Fool has a disclosure policy.