The mantra for successful investors over the last few years has been simple: buy high, sell higher.
Those who worried 2,500 was the top for the S&P 500 SPX, -2.12% or that 25,000 was the ceiling for the Dow Jones Industrial Average DJIA, -2.54% have been proven wrong at every turn.
Until this week, investors waiting to buy on a market dip simply haven’t had much opportunity to do so. And I’m not going to pretend that recent volatility is more than just a blip on the radar in this steady grind higher. But if you’re willing to look beyond the popular winners and root around in the bargain bin, there are a few dinged up stocks that are selling for a discount — if you can overlook a few obvious flaws.
As the market gets choppier, these discounts have become more pronounced. So if you’re eager to “buy the dip” in something, this may be your best chance to get a deal. Here are five potential candidates for discount purchases that are admittedly risky, but could deliver big rewards to tactical traders.
1. Snap
Buying into Snapchat parent Snap Inc. SNAP, -1.51% at its IPO was clearly a recipe for disaster. Missteps by CEO Evan Spiegel showed that this stock and its management were simply not ready for prime time a year ago. But now that the dust has settled and shares are under $14 — down almost 20% for Snap’s offer price of $17 and half of its post IPO high near $30 — this tech company has gotten a lot more interesting as an investment.
This is still a great company if you want to reach mobile-native millennials. And beyond its Snapchat platform, the company recently added new features to Bitmoji, a quirky cartoon avatar platform that the firm bought in 2016 just before its IPO. That won’t change the world or drive instant profits, but shows that Snap is indeed trying to look beyond its photo filters that make it look like you’re puking rainbows — and more importantly, to make something of the smaller companies it has acquired in recent years.
To be sure, weak revenue and user growth in Snap’s November earnings report were disturbing. And there’s a very good chance its report on Feb. 6, will cause another bout of negativity for this self-described “camera company.” But let’s not forget that $2 billion in the bank, zero debt and 180 million daily users is a pretty good recipe for staying power despite short-term troubles.
If earnings are toxic, we certainly will see another leg down. But the bar isn’t all that high and if Snap shares just drift sideways next week on ho-hum results, investors may want to consider this a good entry point.
2. Wynn Resorts
With sexual misconduct allegations against CEO Steve Wynn and news that both the Nevada and Massachusetts Gaming Commission are investigating the casino, things have been painful for Wynn Resorts Ltd. WYNN, -2.31% Shares have tumbled from a 52-week high of $203 recently to around $170.
The actions of CEO Wynn, if true, are despicable. But investors may want to consider that the company is more than just one man, and the simple math behind its fast-growing Asia gaming operations show that any domestic hiccups may not matter as much to Wynn Resorts stock.
After all, Wynn Resorts just posted net revenues for fiscal 2017 that were up 41%. Looking forward, the company will benefits nicely from the 21% cap on the corporate tax rate, considering that it pays an effective tax rate in the ballpark of 40% on its domestic operations.
There isn’t a lot of room for morality to begin with if you’re buying a casino stock, so pragmatic investors may want to hold their nose and buy Wynn Resorts on this dip regardless of your views on its founder and chief executive.
3. Ford
Automaker Ford Motor Co. F, -1.92% has been on a roller-coaster ride for the last year, after its ouster of industry veteran Mark Fields and his replacement by Jim Hackett as CEO last year. But lately, Ford stock has veered dramatically to the downside; shares are trading at their lowest levels since August 2017, at less than $11 from highs above $13 in mid-January.
The reasons are pretty obvious, with recent earnings missing the mark on key metrics and a lack of visibility about Ford’s direction in the age of electric vehicles and self-driving cars. Throw in a matured auto sales cycle that will create harder year-over-year comparisons, and a drop in January vehicle sales, and it has been a painful run for Ford stock lately.
Let’s not make the mistake of thinking Ford will evaporate. The company pays 60 cents in annual dividends, which is less than 40% of projected EPS this fiscal year but still good for a mammoth 5.5% yield. The stock also trades at a forward price-to-earnings of just 7.1 and a forward price-to-sales of around 0.3.
It’s clear that the negativity is already priced in, and investors who are patient may want to sit on the juicy dividend and wait for Wall Street to come to its senses on this admittedly flawed but undervalued automaker.
4. Roku
Streaming video platform Roku Inc. ROKU, +1.35% doesn’t really have long-term troubles, holding a successful IPO late last year and seeing shares surge afterwards as a result. However, the stock has rolled back 30% from Roku’s 52-week high back in the first week of January.
Oddly enough, there haven’t been many reasons — or at least, not much news — to spark the decline. Some traders have mused that the big run at the end of last year was simply a short-squeeze and that the gains weren’t durable. But while short interest dipped from 7.7 million shares to 5.9 million across two weeks in the beginning of December, that was long after the big pop in November, and a bit of a red herring.
More likely is that some investors have simply moved on, captivated by stellar growth numbers and better share performance over at Netflix NFLX, +0.89% . However, the two streaming video companies are actually partners in a way and not mutually exclusive. And while Roku is still unprofitable, it has a strong brand and is just getting started, considering its initial public offering was just over four months ago.
There is sure to be more volatility ahead for Roku, as with all recently tech IPOs. But there’s also a good chance that the deep dip from recent highs can be recovered if Roku shows consistently improving operating metrics.
5. CenturyLink
The reasons to shun struggling stock CenturyLink Inc. CTL, -1.23% are well-known, with the telecom still undersized compared with behemoths like AT&T T, -2.78% and Verizon Communications VZ, -2.43% and persistent struggles to keep revenue moving higher.
But none of this is new. And while the fundamentals of the business aren’t necessarily amazing, the efficiencies it will gain from the acquisition of Level 3 Communications will help, and the negativity has largely been priced in after a 30% decline over the last 12 months and decline of about 50% from its 2014 highs.
In fact, an analyst at Goldman Sachs upgraded the stock from “sell” to “neutral,” writing that a “stable dividend” — which currently boasts an staggering 12% annualized yield at these levels — is not in danger of disappearing.
CenturyLink is not a growth stock. There may not even be much long-term value here. But if you hold for 12-18 months there’s a good chance you could outperform the market on the dividends alone. A modest uptick in the share price from these levels would be a nice sweetener, too.