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2 Stocks Down 74% & 57.5% To Buy Now

Posted on by Dsen .N
2 Stocks Down 74% & 57.5% To Buy Now

In the stock market, it is common for winners to keep winning. Strong sales and earnings momentum usually translates into strong returns for shareholders.

On the other hand, you can also make big profits by betting on high-quality companies that are undervalued due to short-term headwinds that can be overcome over time.

With that in mind, read on to learn why two Motley Fool contributors believe investing in these two industry leaders would be a smart move while their shares are still trading at huge discounts.

Jennifer Saibil: Wrestling Carnival (NYSE: CCL) doubled last year and is growing this year, but believe it or not, it’s still 74% below its previous peak. That may be surprising, since its business has rebounded and is surpassing pre-pandemic levels. Carnival is reporting record revenue, strong demand and improving profitability.

In the second quarter of fiscal 2024 (ended May 31), revenue was a record $5.8 billion. Operating income was $560 million, up nearly 400% from a year ago, and net income was $92 million, or $0.07 per share.

Demand remains strong, with customer deposits and booking levels once again at record levels. The trends of a longer booking curve at higher prices continue, with the overall booking position for the rest of 2024 at its best ever, while 2025 has seen record bookings.

So what’s the catch? There are still a lot of indicators that don’t match pre-pandemic results, and that discourages investors.

Net income was positive this quarter, but that’s still inconsistent. More pressing, though, is debt. Carnival is paying down the massive debt it took on to keep the business afloat when it had no revenue, but it still stands at $29 billion.

It has $5.7 billion due in the next three years and needs to raise enough cash to pay it off. It had $2 billion in cash from operations in the second quarter and $1.3 billion in free cash flow, and if it can keep those numbers up, it should be OK.

But it has to keep that up for a long time so it can pay off all the extra debt and still have enough cash to run the business. That’s a lot of risk for shareholders right now.

That’s why the market still values ​​it at a low valuation, just 1x its sales in the last 12 months. At that price, and with its excellent track record and potential, it looks like a real bargain for risk-tolerant investors.

Keith Noonan: Even before publication NikeShares of the footwear and apparel industry leader started 2024 on the wrong foot, according to the company’s (NYSE:NKE) latest earnings report.

Inflation and other economic factors have made buyers more price-sensitive, while weaker demand in key international markets has also weighed on the stock. Signs that the company may need more time than previously expected to return to delivering solid growth have only added to the bearish sentiment.

Nike shares fell about 20% in trading after it released its earnings report for the fourth quarter of its last fiscal year, which ended on May 31. The company actually reported a significant increase in earnings for the quarter, with adjusted earnings per share of $1.01 coming in well ahead of analysts’ average forecast of $0.84 per share for the quarter.

On the other hand, revenue of $12.61 billion was about $250 million below the average Wall Street target.

Revenue fell 2% year over year after adjusting for currency movements in the period. Adding to the bearish pressure on the stock, management’s forecast for a sales decline of about 10% in the first quarter came in well short of Wall Street’s forecasts. Expectations that the company will continue to face macroeconomic pressures in the U.S. and relatively weak demand in China point to an uninspiring outlook for the rest of the year.

The stock is down about 31% year to date and 57.5% from its all-time high. While it’s clear the business is facing some headwinds, the recent pullback likely represents a good buying opportunity.

Over the past five years, Nike’s stock price has traded below its current level only briefly in 2020, a period marked by a massive market-wide sell-off due to the pandemic. With the stock trading at about 20 times its trailing 12-month earnings, Nike has not traded at a lower multiple of its trailing 12-month earnings at any point in the past five years.

The dramatic sell-off also lifted the company’s dividend yield to 1.9%, its highest ever. The weaker outlook suggests that dividend growth may slow in the near term, but Nike has still raised its dividend by about 68% over the past five years and 208% over the past decade.

Nike is in a turnaround phase and will likely face selling pressure this year, but the company still has a strong infrastructure and distribution advantage and one of the strongest brands in the world. For investors looking for dividend growth stocks and attractively priced returns, the stock looks like a smart buy right now.

Before you buy Carnival Corp. stock, consider the following:

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Jennifer Saibil does not own any of the shares listed above. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has a position in and recommends Nike. The Motley Fool recommends Carnival Corp. and recommends the following options: long January 2025 $47.50 call options on Nike. The Motley Fool has Disclosure Policy.

2 Stocks Down 74% & 57.5% to Buy Now was originally published by The Motley Fool