Down More Than 50%: Analysts Say Buy These 3 Beaten-Down Stocks Before They Rebound
Now that we’re into the second half of 2022, with the Independence Day holiday behind us, we can take stock of the changes that the last six months have brought. And those changes have been dramatic. As this year got started, the S&P 500 was coming off of a 27% annual gain. Today, the index is down 20%, putting it into a bear market.
The losses have been broad-based, and have left many otherwise sound equities languishing at low prices. It’s a circumstance that has a lot of unhappy investors wondering what the options are – but it has also opened opportunities for anyone willing to shoulder some added risk in a difficult investing environment.
With this in mind, we’ve used the TipRanks database to pinpoint three stocks that have shown hefty losses this year, on the order of 50% to 75%, but each also features a Strong Buy analyst consensus rating and a powerful upside potential. Let’s take a deeper dive in.
PLBY Group (PLBY)
The first stock, the PLBY Group, defines itself, without irony, as a ‘pleasure and leisure’ company. Founded by Hugh Hefner in 1953, the PLBY Group owns Playboy, one of the world’s most distinctive and recognizable brands. While the magazine is the company’s most immediately recognizable product, Playboy also boasts over 1 million active digital customers, more than 50 million global social media fans, and activities in over 180 countries. The company’s products include style and apparel, gaming and lifestyle, and beauty and grooming products.
The company’s strong brand supports its growing revenue stream. Playboy reported 63% year-over-year revenue growth in its recent 1Q22 report, with $69.4 million at the top line. This was driven by a 125% increase in direct-to-consumer revenue, which hit $49.6 million. At the bottom line, the company reported a 12 cent profit per share, a sharp turnaround from the 15-cent per-share loss reported in 1Q21.
Despite solid results, PLBY saw its shares fall 76% since the start of the year. In the last 12 months, the company has been making moves to expand, acquiring new subsidiaries and moving into the Chinese and Indian markets. Playboy already boasts a $1 billion e-commerce spend in China, as part of its move into that country, and the company has been working to put a virtual version of the legendary Playboy Mansion online in the Metaverse.
What this means, in the eyes of Craig-Hallum analyst Alex Fuhrman, is a clear opportunity for investors seeking a ground-floor entrance.
“PLBY is undervalued and the company continues to perform well. Q1 revenue was ahead of our estimate and adj. EBITDA was within a few hundred thousand dollars of our estimate – an impressive result at a time when many other e-commerce retailers are missing estimates and/or lowering guidance,” Fuhrman opined.
“Despite strong performance and owning one of the most recognized brands in the world, PLBY trades at a meaningful discount to peers. Given the years-long opportunity for the Playboy brand to catch up from years of poor management and under-monetization, we view this discount as an attractive buying opportunity,” the analyst added.
These comments back up the analyst’s Buy rating, and quantified by his $30 price target, which indicates his confidence in a whopping 366% upside for the next 12 months. (To watch Fuhrman’s track record, click here)
Sometimes, a company’s product inspired unanimity from the Street’s analysts – PLBY does just that. All 5 of the recent analyst reviews are positive, making the Strong Buy consensus rating unanimous. The average price target of $20.60 suggests ~220% upside from the current trading price of $6.44. (See PLBY stock forecast on TipRanks)
The next beaten-down stock we’ll at is Ambarella, a semiconductor chip maker. The company operates in the fabless niche, meaning the company designs, promotes, markets, and sells its chip products, and produces small numbers of prototypes for testing purposes, but contracts with the large chip foundries for full-scale production orders. Ambarella’s chips are designed for video applications, and are specialized for advanced image processing and high-resolution video compression. The chipsets have found application in a wide range of small camera systems, including wearable cameras, vehicle dashboard cams, pocket video cameras, and even drones. The common denominator here is low-power, high-definition video.
So far this year, Ambarella’s shares have fallen approximately 68%. A large part of that drop, some 31%, came at the end of February, when the company reported revenue guidance of $88.5 million to $91.5 million; at the midpoint of $90 million, this came in below the ~$91 million forecast. Management predicted lower margins through the rest of the calendar year, which did not help matters.
The company is facing headwinds from the general market environment, but also from the semiconductor chip shortage. As a fabless company, Ambarella depends on its foundries, and they are heavily backlogged.
Ambarella did meet its guidance, however, when it released its Q1 report for fiscal 2023, the quarter ending on April 30. The company reported $90.3 million at the top line, or a 29% year-over-year gain. At the bottom line, non-GAAP EPS came in at 44 cents per diluted share, almost double the 23 cents reported in the year-ago quarter.
On a positive note for the company, Ambarella announced in June a new partnership with Inceptio, a pioneer in autonomous trucking. Under the agreement, Ambarella will provide chips for an automotive grade central computing platform capable of simultaneously processing no fewer than seven 8MP cameras for surround perception and collision avoidance.
This chip company and its automotive applications has attracted attention from 5-star analyst Gary Mobley of Wells Fargo, who writes: “We view AMBA as one of the purest ways in the chip sector to play the AI/ML computer vision at the edge, and one of the best ways to play growing L2+ ADAS/AV functions in the automotive market (e.g., computer vision processing and sensor fusion). We view AMBA as a strategically important asset for automotive OEMs wishing to support L2+ ADAS/AV as well as incumbent auto chip suppliers focused on MCUs and sensor technology (e.g. image & radar).”
Mobley doesn’t stop with upbeat comments, he also gives AMBA stock an Overweight (i.e. Buy) rating, along with a $110 price target that implies a 72% one-year upside potential. (To watch Mobley’s track record, click here)
Wall Street is clearly interested in this stock, and has given it 13 recent analyst reviews. These break down to 11 Buys, 1 Hold, and 1 Sell, for a Strong Buy consensus rating. The shares are selling for $63.93 and their $119.62 average price target suggests an 87% gain this year. (See Ambarella stock forecast on TipRanks)
Ichor Holdings (ICHR)
Last on our list, Ichor Holdings, has a stable of subsidiaries in the field of critical systems engineering and manufacturing. Ichor operates in the semiconductor, manufacturing, and integrated solutions niches, where it provides equipment and processes as varied as gas modules and chemical process subsystems. The company’s products are also found in the manufacturing process of alt energy sources, biomedical gear, and LED displays.
A wide ranging, highly varied business is an advantage for manufacturer, especially when it comes to the manufacture of specialty products. Ichor has seen its revenues generally grow over the past two years, and the most recent print, for 1Q22, came in at just over $293 million. This was up 11% year-over-year, and the best result of the past 9 quarter. Non-GAAP EPS, however, was reported at 70 cents, down from 1Q21’s 76 cents, and well below the 90-cent forecast.
The disappointing earnings put investors on edge, with shares slipping 52% year-to-date.
The weakness in the recent earnings report hasn’t bothered DA Davidson analyst Thomas Diffely, who wrote of the stock: “Despite a challenging operating environment, market demand remains robust, in fact the company increased investment in direct labor and manufacturing capacity. Further, ICHR is once again set to outpace 2022 WFE growth (~15%) thanks to its leverage to key tool segments (etch and dep). As such, our bullish thesis on ICHR remains intact.”
To this end, the 5-star analyst rates ICHR shares a Buy while setting a $60 price target to suggest an impressive potential one-year gain of 171%. (To watch Diffely’s track record, click here)
All in all, out of 5 analyst reviews on file for ICHR, 4 rate it a Buy, giving the stock a Strong Buy analyst consensus. The shares are trading for $22.14 and their $43.60 average price target implies an upside of ~97% over the coming year. (See Ichor stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
American Weed Stocks Are Cheap. They’re About to Get a Sales Bump.
However bad the year has been for most stocks, it has been especially harsh for state-licensed cannabis sellers.
In just the past month, the
AdvisorShares Pure US Cannabis
exchange-traded fund (ticker: MSOS), which tracks America’s multistate operators—or MSOs—fell 25%, while the
How Do Mega Backdoor Roths Work?
A mega backdoor Roth is a unique 401(k) rollover strategy that’s designed for people whose incomes would ordinarily keep them from saving in a Roth Individual Retirement Account. The advantage of using a Roth IRA to save for retirement is being able to make tax-free qualified withdrawals. But not everyone can contribute to these accounts; higher-income earners are excluded. That’s where the mega backdoor Roth comes into play. If you have a 401(k) you’d like to roll over, you could use this strategy to enjoy the tax benefits of a Roth IRA without having income be an obstacle.
Make sure you’re taking advantage of every opportunity to maximize your retirement assets by working with a financial advisor.
Roth Account Basics
Before diving into the specifics of a mega backdoor Roth, there are a few things to know about Roth accounts, including Roth IRAs and Roth 401(k)s.
First, these accounts are both funded with after-tax dollars. That means when you make qualified withdrawals later, you won’t pay income tax on the money since you already paid it upfront. This is the key characteristic of Roth accounts and what makes them so appealing to investors who anticipate being in a higher tax bracket at retirement.
Next, your ability to contribute to a Roth 401(k) is not restricted by your income. But it is for a Roth IRA. For the 2021 tax year, you must be within these modified adjusted gross income limits to make a full Roth IRA contribution:
Single filers: MAGI of $125,000 or less
Married filing jointly: MAGI of $198,000 or less
Head of household: MAGI of $125,000 or less
You can make partial contributions above those income limits. But your ability to contribute phases out completely once your MAGI hits $140,000 (if you file single or head of household) or $208,000 if you’re married and file a joint return. For 2021, the full contribution allowed is $6,000 with a $1,000 catch-up contribution for savers aged 50 and older.
Finally, Roth 401(k) accounts are subject to required minimum distribution rules just like traditional 401(k) accounts. This rule requires you to begin taking money from your 401(k) starting at age 72. A Roth IRA, on the other hand, is not subject to RMD rules.
What Is a Backdoor Roth?
A backdoor Roth offers a work-around for people whose incomes are above the limits set by the IRS. When you execute a backdoor Roth, you roll money over from a traditional IRA to a Roth account. This way, you won’t have to pay taxes on your retirement savings in the Roth IRA when it’s time to make withdrawals. And you’re not subject to required minimum distribution rules either.
But there is a catch. You have to pay income tax on the money you roll over to a Roth account. So while you could save money on taxes in retirement, you’re not escaping the tax liability of a traditional IRA altogether.
How a Mega Backdoor Roth Works
A mega backdoor Roth is a backdoor Roth that’s designed specifically for people who have a 401(k) plan at work. This type of backdoor Roth allows you to contribute up to $38,500 to a Roth IRA or a Roth 401(k) in 2021. This is in addition to the regular annual contribution limits the IRS allows for these types of accounts. To execute a mega backdoor Roth, two conditions have to be met. Your 401(k) plan needs to allow the following:
You can ask your plan administrator whether your 401(k) meets these criteria. And if your plan doesn’t allow for in-service withdrawals or distributions, you could still attempt a mega backdoor Roth if you plan to leave your job in the near future.
If your plan meets the criteria, then you can take the next steps to execute a mega backdoor Roth. This is typically a two-step process that involves maxing out after-tax 401(k) contributions, then withdrawing the after-tax portion of your account to a Roth IRA.
Again, whether you can follow through on the second step depends on whether your plan allows in-service withdrawals. If it doesn’t, you’ll have to wait until you separate from your employer to roll over any after-tax money in your 401(k) into a Roth IRA.
You also need to watch out for the pro rata rule. This IRS rule says you can’t only withdraw pre- or post-tax contributions from a traditional 401(k). So if you’re completing a mega backdoor Roth, you couldn’t just withdraw post-tax contributions if your account holds both pre- and post-tax funds. In that case, you may have to roll over the entire balance to a Roth IRA.
Benefits of a Mega Backdoor Roth
There are three key benefits associated with executing a mega backdoor Roth. First, you can contribute significantly more to a Roth IRA upfront this way. For 2021, the contribution limit is $38,500 on top of the regular annual contribution limit and any catch-up contribution limits that may apply.
You’ll need to know the maximum amount you’re allowed to contribute to the after-tax portion of your 401(k). So for 2021, the IRS allows a maximum contribution of $58,000 or $64,500 if you’re 50 or older. You’d subtract your 401(k) contributions and anything your employer adds in matching contributions to figure out how much you could add to the after-tax portion.
Next, you can enjoy tax-free withdrawals in retirement. This is a benefit you may otherwise not being able to get if your income is too high to contribute to a Roth IRA. By reducing your tax liability in retirement, you can help your investment dollars go further. And you may have a larger legacy of wealth to pass on to future generations.
Finally, a mega backdoor Roth IRA would allow you to sidestep required minimum distribution rules. This means that you could retain control over when you choose to take distributions from a Roth IRA.
So who is a mega backdoor Roth right for? You may consider this move if you:
Have an eligible 401(k) plan at work
Have maxed out traditional 401(k) contributions
Are not eligible to contribute to a Roth IRA because of your income
Have additional money that you want to invest for retirement
Want to leverage the higher Roth IRA contribution limits allowed by a mega backdoor rollover
Talking to your financial advisor can help you decide if a mega backdoor Roth makes sense. And your 401(k) plan administrator should be able to tell you if it’s possible, based on your plan’s guidelines.
Mega Backdoor Roth Alternatives
If you can’t execute a mega backdoor Roth because your plan doesn’t allow it, there are other ways to increase your retirement savings. For example, you could try a regular backdoor Roth instead. This might be something to consider if you still want to enjoy the tax benefits of a Roth IRA but your plan doesn’t fit the criteria for a mega rollover. You could also elect to make Roth 401(k) contributions to your retirement plan at work. This way, you still get the benefit of contributing after-tax dollars and making tax-free withdrawals. You’d be subject to the regular contribution limits and you’d still have to take the required minimum distribution. But that may outweigh the value of tax savings in retirement.
Investing in a Health Savings Account (HSA) is another option. While these accounts are not specifically designed for retirement, they can yield multiple tax benefits. Contributions are tax-deductible and grow tax-deferred. Withdrawals are tax-free when used for eligible healthcare expenses. And at 65, you can take money out of an HSA for any reason without a tax penalty. You’ll just owe ordinary income tax on any withdrawals that are not used for healthcare expenses.
Finally, you could open a taxable brokerage account to invest. This doesn’t necessarily save you money on taxes since you’ll owe capital gains tax when you sell investments at a profit. But it could help you to diversify your investments and there are no limits on how much you can invest in a brokerage account annually.
A mega backdoor Roth strategy could work well for higher-income earners who want to take advantage of Roth account benefits. There are certain rules that need to be followed to make it work, however, so you may want to talk to your plan administrator or a tax professional before going ahead. Keep in mind also that even if you can’t complete a mega backdoor Roth rollover, you still have other options for growing retirement savings.
Tips for Retirement Planning
If you’re saving for retirement in a 401(k) or IRA, pay attention to the fees you’re paying. For instance, check the expense ratios for each fund you’re invested in to understand how much you pay to own that fund on an annual basis. You can then compare that to the fund’s performance to determine whether the fees are justified. Also, consider any administrative fees you might be paying and how those affect your net returns.
Consider talking to your financial advisor about a mega backdoor Roth and whether it could be right for you. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors in your local area. You can get your personalized recommendations in minutes just by answering a few simple questions. If you’re ready, get started now.
Photo credit: ©iStock.com/designer491
Alibaba Is Tumbling. Chinese Tech Stocks Have a New Headache.
Chinese tech stocks were tumbling on Monday as two of the embattled sector’s leading players faced fresh fines from market regulators over disclosure rules.
China’s State Administration for Market Regulation announced Sunday a wave of penalties for improperly reporting past deals, in breach of competition law.
(ticker: BABA) and
(0700.H.K.) were among the companies fined as a result.
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