Turnaround Treasures: 3 Stocks to Snag After a Recent 20% Drop
Some of my favorite articles to write are those that highlight possible turnaround stocks. These are stocks whose share prices have been hammered over a short period. Companies that otherwise are excellent businesses.
For example, in January 2019, I recommended seven stocks to buy that had lost 20% of their value over the past quarter. It’s fair to say that most of the names on the list have done exceptionally well over the past five years. The real outlier, however, was SVB Financial. It went on to crash and burn in 2023.
Last August, I selected three stocks to buy. Only that time, I went with a 20% drop over the past month. All three are up since then. This buy-on-the-dip thing can be rewarding.
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This time, my three selections will be both to make things interesting. One stock will be from a list of names down 20% in the past month, another from those down 20% in the past three months, and the final one from names down 20% over the past six months.
To ensure quality choices are made, the minimum market capitalization will be $2 billion. Further, they must have a return on assets of 10% or higher.
Sociedad Quimica y Minr de Chile SA (SQM)
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Sociedad Quimica y Minr de Chile SA (NYSE:SQM) was down 23.4% over the past month at the time of writing. Despite the losses in the past year (off by nearly 51%), the Chilean chemical company’s stock has managed to deliver positive returns over the past five years, although well short of the S&P 500.
Why is the stock down so much in the past year?
Chilean President Gabriel Boric announced in April 2023 that Chile would nationalize the domestic lithium industry. As a result of the uncertainty surrounding its future as an independent company and the price it would receive for its assets, its stock has dropped. It now trades within a couple of dollars of its Nov. 2023 52-week low of $44.86.
Although there are plenty of opinions on the Chilean government’s focus regarding the lithium market, SQM has a contract through 2030, so the near-term effect will be minimal.
However, while the unknown remains a problem for SQM stock, the global demand for lithium remains high. It’s expected to quadruple by 2030 to 1.8 million tonnes, leaving a supply imbalance of 0.3 million tonnes.
It’s very possible Chile merely wants to attract more private investment in the lithium market to fill some of this global shortfall.
For risk-tolerant investors, the fact SQM trades at 1.44x sales, less than one-third of its five-year average of 4.60, provides a good entry point to benefit from future clarification of the government’s plans for the lithium market.
Miniso Group (MNSO)
Source: shutterstock.com/Hendrick Wu
Miniso Group (NYSE:MNSO) stock, including dividends, is down 23.7% over the past three months, considerably worse than its specialty retail peers, which are up 15.9% on average. From its 52-week high of $29.92 in September 2023, its shares are down 34%.
Frankly, the correction of MNSO stock between September and the end of December provides investors an excellent buy-on-the-dip opportunity.
Its financials remain strong — MNSO finished fiscal 2023 (June year-end) with revenue of $1.58 billion, 13.8% higher than 2022, with an adjusted net profit of $254.4 million, 155.3% higher than a year earlier — with many more stores to be added worldwide in 2024.
“The June Quarter has witnessed too many breakthroughs and new heights in each major aspect of our operations. We opened a total of 221 new stores on a net basis in China during the quarter, including more than 90 of new stores in first- and second-tier cities,” stated CEO and founder Guofu Ye in its Q4 2023 press release.
“We are confident that MINISO will be able to expand its network in different tier cities across China. We now expect to have about 5,000 stores in China by 2027 compared to the 3,325 we had at the end of 2022.”
There is a reason all 24 analysts covering its stock rate it Outperform or an outright Buy with a median target price of $30.90, 56% higher than its current share price.
I’ve liked Miniso for a while. Its stock has a good shot to return to $30 in 2024.
BRP (DOOO)
Source: faak/shutterstock.com
BRP (NASDAQ:DOOO) is one of my favorite stocks, not just because it’s based in Canada. Its products, especially its side-by-side (SSV) and all-terrain vehicles (ATV), continue to attract American consumers.
In October 2020, I recommended BRP as one of 10 Canadian stocks for recovery in 2021 and beyond. Generally, they’ve performed exceptionally well. I’d still recommend them except for Canopy Growth (NASDAQ:CGC) and Air Canada (OTCMKTS:ACDVF). And I still feel positively about DOOO.
The fact that its stock is down more than 27% over the past six months should not dissuade you from buying shares in the manufacturer of powersports vehicles.
Morningstar.com’s Andrew Willis discussed BRP stock in December. Willis pointed out that it had recently raised its economic moat rating to Wide from Narrow due to its strong brand name, cost efficiency, and industry innovation. I couldn’t agree more.
Higher interest rates put a dent in sales. However, as Willis highlighted, demand for its products in markets like China could reinvigorate its sales in 2024 and beyond.
In the trailing 12 months ended Oct. 31, 2023, BRP had a free cash flow of 739 million Canadian dollars ($549.0 million). Based on an enterprise value of 9.45 billion Canadian dollars ($7.02 billion), it has a free cash flow yield of 7.8%. Anything over 8% is value territory.
It’s an excellent long-term buy before interest rates come down.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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