Three Underperforming Stocks that Might Finally See Large Gains
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A company with strong fundamental growth that underperforms can be one of the most frustrating occurrences an investor will encounter. It tests your patience, confidence, and sometimes your knowledge to hold a stock when it will not appreciate with fundamental growth. In this article I am looking at three such stocks -- great fundamentals but horrible stocks, as of late.
Questcor Trades Higher but Still Has a Ways to Go
Prior to Sept. 7, shares of Questcor Pharmaceuticals (NASDAQ: QCOR) had rallied more than 10,000% over the previous five years. The stock had been one of the best performing stocks in the market, and surprisingly its growth actually compared well to its metrics. However, after a series of bearish articles by Citron Research combined with news of an investigation into its marketing strategy, the stock lost more than 60% of its value during the following three months (from September 6).
Despite the concerns of investors, Questcor continued to reiterate and instill confidence that it was a company on the rise. It announced a solid yield of 3% and implemented an aggressive buyback program. Yet throughout the process, the stock could not seem to exceed $26.00, less than half of its 52-week high. However, over the last month the stock has begun to show signs of life, posting a gain of 16%, and trading to over $29.00 on Monday with a 3.50% gain. Therefore, it is possible that the stock continues to rally, after breaking through resistance. The company is still expected to post earnings growth of nearly 40% over the next year, has a large cash position, and pays a hefty dividend. Therefore, it remains a great company that might, once again, become a great stock.
The Best of the Banks Presenting Value
BB&T Corporation (NYSE: BBT) is one of the very few banking companies that is actually growing. During its last quarter the company grew is revenue by more than 18% and its profit by 35%, representing significant margin growth. The company is always on the top tier of any list having to do with customer service, loans, mortgages, etc. when it comes to banks. Yet despite this growth and the operational strengths, the company’s last quarter was a slight miss. And because of this miss, BBT has traded lower by 14% during the last three months, and has been unable to exceed $29.00.
In the next year BB&T is expected to see growth of nearly 19%. The company is now trading with a forward P/E ratio of 9.90 and operates as one of the most efficient banks in the sector, and operates in a very strong region. Therefore, its inability to trade higher while other large banks have rallied has been quite confusing. As a result, it was quite gratifying to see the stock post gains of more than 2.50% on Monday and cross the crucial $29.00 level. At this point it is yet to clear $29.00 by a large margin, but it should be monitored if the stock continues to trade any higher.
SodaStream: Great Company, Horrible Stock
While BB&T and Questcor were pushed lower due to a presumed weakness, Sodastream (NASDAQ: SODA) has fallen for no apparent reason. The company has maintained top line growth of more than 50%, bottom line growth of nearly 70%, and it has recently entered its products into a number of new stores, including Wal-Mart.
For the last 22 months, shares of SodaStream have traded with no gains despite significant fundamental improvements. The stock has had several different levels of resistance, but most notably at $42.00 a share. However, on Monday the stock reached nine month highs and blew past $43 due to the expectations of a strong holiday season. There have been several product checks that show a strong demand, and with the presence of Wal-Mart the company is looking to make a larger splash in the U.S. It’s hard to say whether or not the rally will continue, but with the potential for a short squeeze and a forward P/E ratio of 16.47, this is a fundamentally strong company to monitor closely.
I have always said that I am by no means a technical investor. However, I am a fundamental investor, and I know that each of these companies are fundamentally strong and are seeing very few signs of slowed growth. The levels of resistance noted above are based on many months of watching each stock and its behavior upon reaching these levels. Therefore, it is encouraging to see the trend higher, and maybe as the year comes to an end it is a sign that we might finally see large gains in these fast-growing, undervalued companies.
BrianNichols is long BBT, QCOR. The Motley Fool owns shares of SodaStream. Motley Fool newsletter services recommend SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!