US stock markets were wavering after latest inflation data showed pricing pressures are returning, albeit due to rising oil prices. Despite the ifs and buts, it’s clear that the Fed has not been able to get the results it wanted (so far) with its persistent rate hikes. Investors were too early to cheer the start of the bull market. The Fed could very well begin another set of rate hikes, and even if it holds back on rate hikes for now the first half of 2024 could be jittery for the stock market. But stock markets have always been like this; always moving on news cycles and investors always looking over their shoulder for that next important data point and report. If we zoom out, though, we will notice that stock markets tend to move upwards in the long run and investors who give up too early and sell based on news cycles end up losing most of those sweet gains.
A report by MFS Investment Management analyzed data provided by FactSet and S&P which consist of stock market movements and returns starting from the end of 2002 to the end of 2022. The report analyzes the returns on an initial hypothetical investment of $10,000 during the period. If you had invested $10,000 in the S&P 500 in December 2002 and had stayed invested (that’s the most important part here), your initial investment would have grown to a whopping $64,844 by the end of 2022. But if you had missed just 30 “best days” you’d get only $11,702. If you’d missed out on 20 best days you’d get $17,826 according to the report. Notice the huge differences in returns as you increase the number of days invested. This is the power of staying invested in the stock market and not giving in to the news cycles that always paint a doom and gloom scenario for investors.
Lessons from Mohnish Pabrai
Mohnish Pabrai, one of the notable value investors, talked about some golden rules of value investing and what he learned from legendary value investors like Warren Buffett in an interview with Sum Zero. Pabrai said that there are more opportunities for investors when the market is going through pessimism as compared to times when the market is in euphoria. Pabrai also talked about our biases and mistakes investors make. He said:
“Even if I look at the United States with its 3500 some odd publicly traded businesses, an investment manager can really not drill down on more than a few dozen of them every year. So they have to make a decision relatively quickly on which ones they are or are not going to focus on. Commitment bias that comes in once we start spending time on something, our brains play games with us. One of the games our brain plays is that we feel entitled. “Hey, if I spent some time on it, I ought to make money on it”. And that’s really not how investing works. I think it’s very important to be aware of commitment bias, and to be very aware that the first two or three minutes that when you’re looking at a company are when you have to make the call. It’s okay to let a winner go, but more important not to let a loser stay.”
In this article we scoured several Reddit subreddits like Investing, StockMarket, Stocks, Wall Street Bets, among others, to see which stocks Redditors believe will rebound from their lows in the future. We picked only those stocks that are down year to date or over the past 12 months with a positive sentiment on Reddit. Redditors either believe these companies are undervalued or the selloff around them is overdone. The list is ranked in ascending order of the number of hedge fund investors around each stock.
Lithium Americas Corp. (NYSE:LAC) shares have lost about 40% over the past one year. Lithium Americas Corp. (NYSE:LAC) is one of the top lithium stocks loved by Redditors and many on the platform believe the stock is offering a good entry point for the long term.
Lithium Americas Corp. (NYSE:LAC) is currently on investors’ radar after reports said an estimated 20 to 40 million tonnes of lithium reserves are found near the company’s Thacker Pass project.
As of the end of the second quarter of 2023, 12 hedge funds tracked by Insider Monkey reported owning stakes in Lithium Americas Corp. (NYSE:LAC).
Massif Capital made the following comment about Lithium Americas Corp. (NYSE:LAC) in its Q1 2023 investor letter:
“During the first quarter, Lithium Americas Corp. (NYSE:LAC) had several positive events, including a favorable record of decision ruling for Thacker Pass, paving the way for construction of the mine to start, a revised Thacker resource/cost estimates, and GM’s financing/offtake agreement. Even though LAC is non-producing and its stock is down 34% over the past year (compared to the larger lithium producer’s 3%), the stock remains one of our favorites with multiple catalysts (and still up roughly 600% from our initial purchase price):
Clothing company Levi Strauss shares fell sharply in July after the company cut its FY23 revenue growth guidance range and also decreased its FY23 profit guidance by 15%.
In the second quarter, Levi Strauss's adjusted EPS came in at $0.04 beating estimates by $0.01. Revenue in the period came in at $1.34 billion, meeting estimates.
LEVI has a PE ratio of 12.40 as of September 13. Levi’s is also a strong dividend payer, with an over 3% yield. Redditors believe the stock can rebound when inflation pressures subside and the consumer will have confidence and buying power to boost their spending.
Talking about the future the company said the following in its latest earnings call:
“Driven by our ongoing execution in surgical pricing action U.S. wholesale will stabilize and end the year as a smaller share of our business at less than 30%. Inventories are expected to end 2023 below prior year levels. Our 2023 gross margin is expected to remain 300 basis points higher than 2019 and we will exit the year with Q4 EBIT margins north of 12%. And importantly, we continue to return cash to our shareholders with a payout ratio of 150% of free-cash flow substantially higher than our targeted 55% to 65% communicated at our Investor Day. Lastly, while we are lowering our H2 outlook because of U.S. wholesale, we expect the strong growth in our large fast growing DTC and international businesses to continue, which as U.S. wholesale stabilizes and COGS improves will position our unique business model to generate significant financial leverage beyond 2023.”
Metals and mining company Vale SA (NYSE:VALE)’s stock has lost about 16% year to date through September 13. Redditors believe Vale SA (NYSE:VALE) can rebound. One Redditor, for example, said in a stock discussion thread:
“Im waiting on VALE to catch a low. Its in the murky cross over of an up swing. Looking to hold for a few months for roughly a 25% gain. If it runs to what it did after covid, ~55%. I've got a buy limit order in, hopefully penny pinching doesn't hurt me while I'm gone on a week vacation.”
Earlier this month, J.P. Morgan upgraded Vale SA (NYSE:VALE) from Neutral. JPMorgan said the stock is undervalued when compared to its peers.
“Current iron ore prices are being supported by improved sentiment on China reopening and robust steel output. Current valuation looks discounted as the stock has de-rated, currently down 27.2% year-to-date, and has been outperformed by iron ore,” JPMorgan’s Rodolfo Angele said.
Miller Value Partners Income Strategy made the following comment about Vale S.A. (NYSE:VALE) in its second quarter 2023 investor letter:
“Vale S.A. (NYSE:VALE) fell during the quarter with iron ore prices. The company reported 1Q23 revenue of $8.44B, -22.7% Y/Y, below consensus of $8.79B, and Adjusted EBITDA of $3.69B, compared to 1Q22 EBITDA of $6.55B, below consensus of $4.49B. The Brazilian miner produced 66.8 million tons (Mt) of iron ore in 1Q23, +5.8% Y/Y, below consensus of 67.7 Mt, 67.0 thousand tons (kt) of copper, +18.4% Y/Y, and 41.0 kt of nickel, -10.5% Y/Y. Although management reaffirmed its FY23 production guidance, analysts seemed to be concerned by the negatively offsetting impacts of weaker iron ore prices as China, the world’s largest iron ore buyer, has threatened to curb any “unreasonable” price gains for the metal in an effort to prevent this year’s steel output from exceeding 2022 levels. Vale generated 1Q23 free cash flow (FCF) of $2.28B, bringing trailing-twelve month (TTM) FCF to $6.73B, or a FCF yield of 11.3%. The company repurchased $763MM worth of shares in the quarter and paid $1.80B in dividends, bringing total capital returned to shareholders in the quarter to $2.56B, or 4.3% of the company’s market cap.”
Target Corporation (NYSE:TGT) shares are down about 16% year to date. Target Corporation (NYSE:TGT) suffered a backlash from customers earlier this year after it showcased LGBT merchandize at its stores. Target Corporation (NYSE:TGT) later moved this LGBT-focused merchandize from “the front of the stores to the back” in some stores.
In August Target Corporation (NYSE:TGT) posted second quarter results. Adjusted EPS in the quarter came in at $1.80 beating estimates by $0.38. Revenue in the period came in at $24.77 billion, missing estimates by $460 million.
As of the end of the first quarter of 2023, 45 hedge funds out of the 910 hedge funds tracked by Insider Monkey reported owning stakes in Target Corporation (NYSE:TGT).
Diamond Hill Large Cap Strategy made the following comment about Target Corporation (NYSE:TGT) in its Q2 2023 investor letter:
“We also purchased an ownership stake in Target Corporation (NYSE:TGT) , the US-based mass retailer. The company has experienced strong traffic growth over the past several years but was disproportionally impacted by poor internal inventory forecasting in 2022, which caused near-term profitability to be negatively impacted. As near-term headwinds subside, we believe Target can restore its margin profile on a sales base that has seen a significant increase since the beginning of the pandemic. The recent stock price sell-off related to near-term controversy concerns allowed us to initiate a position at an attractive discount to our estimate of intrinsic value. Looking past the next couple of quarters, we believe Target is well positioned to gain share longer-term due to its merchandising acumen, real estate locations and omnichannel capabilities.”
Enphase Energy Inc. (NASDAQ:ENPH) ranks 6th in our list of stocks that will bounce back according to Reddit. Recently, BMO Capital mentioned a list of stocks that have grown at a “reasonable price.” Enphase Energy Inc. (NASDAQ:ENPH) was part of the list with an Outperform rating set by BMO.
As of the end of the second quarter of 2023, 50 hedge funds tracked by Insider Monkey reported owning stakes in Enphase Energy Inc. (NASDAQ:ENPH). The biggest stakeholder of Enphase Energy Inc. (NASDAQ:ENPH) was Philippe Laffont’s Coatue Management which owns a $103 million stake in the company.
Here is what Carillon Eagle Mid Cap Growth Fund has to say about Enphase Energy, Inc. (NASDAQ:ENPH) in its Q2 2023 investor letter:
“Enphase Energy provides solar microinverters and energy storage solutions. The company’s shares lagged benchmark counterparts amid concerns surrounding a near-term moderation in the growth of residential solar installation in the United States. Despite this, the company possesses a market-leading position in its core microinverter product and remains wellpositioned over the long term to benefit from ongoing solar adoption trends. Additionally, Enphase is focused on growing its international presence while also unveiling new products that could provide the next tailwind to its growth story.”
