With the year 2024 seeing a significant number of S&P 500 stocks experiencing notable gains, it becomes challenging to find investment opportunities in stocks that have dipped. Among the 503 S&P 500 stocks, 229 have surged more than 20% year-to-date, while only 26 have declined by 20%. An analysis suggests that the healthcare, consumer cyclical, and consumer defensive sectors hold the most potential for rebound.
In previous analyses, certain stocks that exhibited similar declines managed to recover, driven by strategic realignments and market expansions. Historical data shows that companies in these sectors often experience cyclical downturns but have the potential to recover as market dynamics change. Comparing the current trends with past performances, it becomes evident that strategic investments and operational adjustments play a crucial role in turning around the fortunes of these companies.
Healthcare Sector: Dexcom (DXCM)
Dexcom (NASDAQ:DXCM) has seen a downturn of nearly 41% in 2024 and 27% over the past year. The company’s introduction of the Dexcom ONE+ in several international markets earlier this year shows promise. Despite a slight dip in new customer acquisitions in the second quarter, revenues grew by 15%, reaching $1.0 billion. Dexcom projects 2024 revenue of $4.025 billion, with a 20% non-GAAP operating margin.
“We believe we have an incredible product and unparalleled market opportunity,” stated CEO Kevin Ronald Sayer.
The company attributes the slower growth in new customers to its realignment and expansion of its sales force. The CFO, Jereme M. Sylvain, emphasized ongoing investments in infrastructure to expand geographical presence and market access. Analysts raised concerns about Dexcom’s loss of market share in the DME market, but the company remains focused on its CGM business, aiming for recovery within the next 12-18 months.
Consumer Cyclical Sector: Etsy (ETSY)
Etsy (NASDAQ:ETSY) has faced a 32% decline in 2024, reflecting the impact of higher consumer costs on discretionary spending. During Q2 2024, Etsy’s gross merchandise sales fell 2.1% year-over-year to $2.9 billion. Despite the decline, the company’s take rate improved to 22.0%. Etsy continues to attract and retain buyers, showing resilience in a challenging market.
The adjusted EBITDA for Etsy rose by 7.9% in the second quarter, with a 27.7% margin. The company aims to maintain its adjusted EBITDA margin at around 27.4% for 2024. Valued at 16.6 times EBITDA, Etsy is considered an attractive investment opportunity given its current valuation and potential for market recovery.
Consumer Defensive Sector: Brown-Forman (BF.B)
Brown-Forman (NYSE:BF-B), a Louisville-based company, has experienced a 21% drop in 2024 and a 35% decline over the past year. The company, known for its long history and family control, suffers from a pandemic-induced downturn. However, it anticipates a return to growth in fiscal 2025, driven by gains in international markets and inventory normalization.
For fiscal 2025, Brown-Forman projects 3% growth in organic net sales and operating income. Despite a slight decrease in net sales to $4.18 billion, the company saw a 25% rise in operating income, achieving a 33.7% operating margin. Financial metrics suggest that Brown-Forman stock is currently undervalued, making it a compelling investment option.
Evaluating these stocks, investors should consider the potential for recovery based on strategic initiatives and market expansions. Dexcom’s focus on CGM, Etsy’s resilience amidst economic challenges, and Brown-Forman’s historical market presence offer promising opportunities for long-term growth. The analysis highlights the importance of strategic investments and operational efficiencies in driving recovery in these sectors.
