When it comes to the stock market, risk and reward go hand in hand. With that in mind, the best one can do is look at dark horse stocks that didn’t do well in the previous year. This is because majority of Wall Street pundits issue projections based on the current trend, extrapolating the long-term trend. Thus, if a particular stock has done poorly in 2018, the consensus is against good performance in 2019.
However, if you have solid reasons to believe that such a stock will outperform this year, then betting on it isn’t a bad proposition as it won’t burn a hole in your pocket as most analysts have written them off. And eventually, you end up reaping handsome returns at limited risk.
Let’s look at the market’s best performing stocks last year. The list includes names like Tandem Diabetes Care TNDM, Turtle Beach HEAR, Twilio TWLO, Glu Mobile GLUU and Crocs CROX. Interestingly, these were dark horse stocks as all analysts had deemed these dead at the end of 2017.
On this note, let us now look at four dark horse stocks for 2019 —
Stitch Fix, Inc. SFIX, the seller of a range of apparel, shoes, and accessories through Website and mobile app, crumbled in 2018 mostly due to slowdown in user growth, stagnant reach and weak margins.
This time around, things are looking up for Stitch Fix. The company is leveraging data and technology to improve the $1.7-trillion global apparel market this year, and is quite successful in doing so. Thus, any good news on this front should certainly help the company make a big comeback.
Stitch Fix currently flaunts a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current-year earnings has soared 23.1% in the past 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stitch Fix has a Growth Score of B and has outperformed the Retail - Apparel and Shoes industry so far this year (+28.4% vs +7.7%).
Digital advertising company Snap Inc. SNAP had an awful 2018. Firstly, its user growth plunged primarily due to stiff competition from Instagram. Also, there was no improvement on the revenue or gross margin front. To top it, its valued CFO stepped down in less than a year.
Having said that, Snap now has a pretty good chance of making a monstrous comeback. Why? The company is set to improve its international user growth through a better Android app. Advertisers will naturally flock to the platform, driving ad revenues and margins, helping the stock hit $10 again.
Needless to say, Snap is benefitting from its growing popularity among teenagers. Piper Jaffray’s Taking Stock with Teens survey recently confirmed that Snapchat is the most preferred social networking medium among teens, which should certainly drive growth in the near term.
The Zacks Consensus Estimate for its current-year earnings has increased 2.9% in the past 30 days. The Zacks Rank #3 (Hold) company’s expected earnings growth rate for the current and next quarters are a solid 23.5% and 21.4%, respectively. Snap has outperformed the Internet - Software industry on a year-to-date basis (+55.9% vs +17.8%).
Worldwide provider of music streaming services, Spotify Technology S.A. SPOT, fell prey to too much hype in 2018. Early in the year, the stock went public at $132 and by the middle of the year, Spotify jumped to $200. The high price tag, unfortunately, wasn’t supported by fundamentals. As a result, the stock nosedived when rival Apple Music took the lead in certain markets.
However, the hype doesn’t exist this year. Thus, 2019 will be a better year for Spotify as the streaming market is now growing at a steady clip, and Spotify is leading the market, thanks to its technological advantage. Hence, investors should expect its revenue, subscriber and margin to improve at a nice pace, eventually helping the stock bounce back in a big way.
Spotify currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has surged more than 100% in the past 60 days. The company’s expected earnings growth rate for the next quarter is 64.4%, in contrast to the Technology Services industry’s projected decline of 9.7%. The stock flaunts a Growth Score of A and has outperformed the broader industry so far this year (+19.4% vs +18.1%).
Blue Apron Holdings, Inc. APRN faced a torrid 2018. Its stock fell from a $10 IPO price in mid-2017 to less than $1 by the end of 2018. Such an awful performance was due to a shrinking customer base owing to stiff competition.
The company has signed a strategic diet meal kit deal with Weight Watchers International, Inc. WTW, which has bumped up consumer demand. Moreover, Blue Apron improved its operational competence through a new fulfillment center, stabilizing margins. And if margins and customer base expand, Blue Apron might easily see a turnaround in 2019.
Blue Apron currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has climbed 35% in the past 30 days. The company’s expected earnings growth rate for the current and next quarter is a superb 58.8% and 52.9%, respectively. Blue Apron has outperformed the Food - Miscellaneous industry on a year-to-date basis (+37.2% vs +8.4%).
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
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Twilio Inc. (TWLO) : Free Stock Analysis Report
Turtle Beach Corporation (HEAR) : Free Stock Analysis Report
Crocs, Inc. (CROX) : Free Stock Analysis Report
Glu Mobile Inc. (GLUU) : Free Stock Analysis Report
Weight Watchers International Inc (WTW) : Free Stock Analysis Report
Blue Apron Holdings, Inc. (APRN) : Free Stock Analysis Report
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