The market has been on a roll for most of 2017, which means most of the best stocks have been bought and overbought in the desire to get in on the action.
This week, I decided to look for some unloved stocks, wherever I could find them.
To look, I set up a filter that, while more complicated in execution, basically searches for stocks with strong earnings growth but have a very low overall ranking in my system. The results were interesting.
And there were some standouts, which is why I decided to share with you seven worthy stocks that get no love in the current market even though they are putting in some pretty respectable performances on a quarterly basis.
These are misunderstood stocks that have fallen victim to broad trends and have been painted into the corners where they now exist. That means they’re cheap and have great comeback potential.
Best Stocks to Buy: Macy’s
Source: Mike Mozart via Flickr
Macy’s Inc (NYSE:M) is a prime example of a company that has been tarred with the same brush as many other retailers. And there’s no doubt that this entire industry is under transformation.
The question is, whether M is doing what it needs to do to restructure before it ends up like some the big names that may end up in the dustbin of retail history.
Up until last year, it looked like M was whistling past the graveyard, like so many of its massive retail peers. But since 2016, M has been doing what it takes to pare down, maximize its strengths and take care of its investors in the meantime.
Recently, talk of a dividend cut at J C Penney Company Inc (NYSE:JCP) also scared analysts about M’s 8% dividend. But it has the cash flow and earnings to keep it intact for now. And with the holiday season upon us, it should be good for a while, with maybe an upside surprise.
Best Stocks to Buy: Gap
Gap Inc (NYSE:GPS) is another retailer that has seen the challenges in the space but has adapted quickly.
What’s more, GPS doesn’t have the same issue as the larger department store chains for two reasons. First, it’s a specialty apparel retailer, and with its modest price points, it is attractive regardless of spending habits.
Second, GPS usually has stand-alone stores, not anchor stores in traditional malls. The stores are usually linked to shopping centers, but they aren’t as locked in as department stores.
Most important is, GPS has been innovating on every level to find new ways to use technology to help it gain an edge in the e-commerce world. For example, GPS is now using robots to pack, move and inventory products in its warehouses. It’s also begun to expand its line of Old Navy subscription boxes.
These boxes contain six items of clothing worth more than $100, that cost $69.99, and are shipped quarterly. It started with baby clothes and now the concept is being expanded for kids aged 5-12.
Schlumberger Limited (NYSE:SLB) is the cream of the crop the when it comes to oilfield services companies. And usually, that’s a very good thing.
But in the past decade, with the rise of the U.S. shale fields, the oil market has changed dramatically. And the financial crisis certainly didn’t help either.
The ensuing restructuring of the dynamics in energy markets, moving from the Middle East to the US and other non-OPEC producers, as well as the transition to natural gas and renewables and unconventional drilling methods, have taken their toll on exploration and production. And that’s the bread and butter of SLB’s business.
Beyond these issues, the fact is SLB has been around for more than 140 years and has always managed to find a way to succeed, even in the toughest environments. And it’s doing so now, as well.
The global economy is starting to recover, which means SLB will be ready to rev that economic engine back up.
Best Stocks to Buy: Enbridge Energy
Enbridge Energy Partners LP (NYSE:EEP) is a midstream energy player in North America.
Suffice it to say that the past few years haven’t been banner years for the limited partnership.
But that’s all starting to change. As we see from the recent economic numbers, the U.S. economy is back on track and oil prices seem to have stabilized in the low to mid-$50 a barrel mark. That leaves plenty of profit margin for U.S. drillers and they’re drilling again in greater numbers.
As a midstream player, EEP will reap the benefits of all this. Basically, a midstream player is pipeline company that gets the product from storage facilities to refineries or distribution points. They’re the toll collectors of the energy industry.
They get paid by volume rather than by the price of oil. So, the more they ship, the more they make. And as demand increases, EEP profits increase.
Throwing off a generous 9.5% dividend right now, there’s little downside and plenty of upside from here, as EEP’s recent quarterly earnings showed.
Best Stocks to Buy: Viacom
Viacom Inc (NASDAQ:VIA) is a king of content but it has been violently deposed in recent years.
The biggest challenge VIA has to address is the fact that it had tied itself to cable and satellite providers and wielded its content as the ultimate cudgel. While content remains vital, VIA didn’t plan for the move to mobile and streaming platforms to happen so rapidly and has been left stuck straddling the old content distribution world and the new one.
Finally, it seems VIA is back in the hunt and moving towards the new streaming model. After a drawn out unsuccessful negotiation to merge with CBS, VIA is now looking to develop short-form programming aimed at mobile viewing.
It’s also looking to build content packages with mobile services companies like it has done in Europe. This could be just the thing to turn this content frog back into a prince, if not a king.
Best Stocks to Buy: Tronc
tronc Inc (NASDAQ:TRNC) is the former media presence Tribune Publishing Company. It now comprises over 150 titles across the U.S., including many of the top news and information resources in the markets it serves.
At this point, TRNC is consolidating newspapers and then building them out for the digital age. It’s an ambitious project, especially when the economy was stuggling, but it seems like it’s turning the corner.
It recently released Q3 earnings which were a mixed bag, but that’s to be expected as it transitions from a print to a digital subscription model. That was the one true bright spot: digital-only subscriptions were up 95% compared to year-ago levels. And it has plenty of cash in the bank.
Recent scandals regarding Russian interference on social media will also help drive news-focused readers back to respected journalistic sources for their content and that will boost TRNC as well.
Best Stocks to Buy: Rite Aid
Rite Aid Corporation (NYSE:RAD), by most stock jocks’ accounts, is in dire straights.
It’s using the Walgreen’s Boots Alliance Inc (NYSE:WBA) semi-buyout money to pay down its massive debt, rather than invest back in the business. The entire sector is sucking wind and RAD is sucking hardest.
At this point, after sliding more than 80% year to date, its 2015 acquisition price of pharmacy benefits manager (PBM) EnvisionRX is around the total market cap of RAD’s entire business, including its remaining 2,300 stores.
Dark days indeed.
However, while this sector looks bleak, it’s not going away. The fact that baby boomers are going to be retiring in huge numbers over the next 2 decades and healthcare insurers are much more interested in drugs than surgeries bodes well for the long-term trend.
And yes, Amazon.com, Inc. (NASDAQ:AMZN) is also a part of this story. It could buy the rest of the chain and get brick and mortar stores for its products as well as a PBM for next to nothing.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.