In this article, we will discuss the 10 Worst Performing Stocks to Buy on the Dip.
Capital markets demonstrated increased volatility starting in August 2024 and continuing in September 2024. That being said, strong rallies followed numerous negative performance days. Therefore, these movements have helped keep the stocks moving in an overall positive direction. Market experts believe this is a great time to invest in equities. For those having money in cash, the current juncture provides an opportunity to put capital to work in the longer-term assets.
Wall Street experts believe that the markets are concerned about the signs of economic softness. The experts continue to assess how quickly the US Fed will respond to it through the adjustments in the interest rate policy. With the US Fed starting to cut the key policy rates, global money managers continue to figure out whether it is too late, or will the actions support the broader economy and continued corporate earnings growth. The economic environment has now been changed, with inflation falling and the job market appearing to be modestly weaker. The market experts believe that equity market leadership saw a drastic shift, with tech stocks seeing a modest, third-quarter retreat after leading the market’s surge since late 2022.
Q3 Market Rotation and Market Drivers Moving Forward
As per the US Bank, a subsidiary of the U.S. Bancorp, there was a major Q3 shift that took place in the S&P 500. The bank highlighted that the once-dominant technology sectors (IT and communication services), which outpaced other sectors in 2023 and in H1 2024, gave up some gains. As a result of an easing interest rate environment, the investors decided to shift their focus. The US Bank went on to highlight that the biggest Q3 beneficiaries were real estate and utility stocks.
Moving forward, inflation, labor market trends, business spending patterns, corporate earnings, and stock valuations are likely to dominate the broader US equity market. The US Bank mentioned that Q2 2024 earnings saw an increase of over 10% as compared to Q2 2023 earnings. Despite the challenges related to a slowing economy, the earnings expectations have not been changed. Notably, the markets continue to expect continued earnings growth through the remainder of 2024 and 2025. As per the earnings insight report by FactSet (dated September 20, 2024), for Q3 2024, the estimated (YoY) earnings growth rate for the S&P 500 stood at 4.6%. While analysts are expecting YoY earnings growth of 10.0% for CY 2024, they expect ~15.2% for CY 2025.
Amidst Volatility, Markets Will Experience Swift Recovery
The initial seven months of 2024 saw the broader market move forward, with only modest interruption or volatility. After a tough August start, the stocks recovered quickly, and the broader markets again ended the month in positive territory, only to start September on a volatile note. Most of the volatility stemmed from the expectations of a series of Fed rate cuts. This can be considered as the big driver for the broader market, mainly when the economic focus pivots to labor market conditions instead of inflation threats.
Amidst the broad-based volatility, market experts opine that large stocks were able to retain their advantage.
In July, there was an outperformance by the small stocks as the Russell 2000 Small-Cap Index gained over ~10%, compared to a ~1% gain for the large-cap S&P 500. This was mainly because of the prospects of Fed rate cuts, which led to the short-term shift into smaller stocks. However, the rotation to smaller-cap stocks was again sidetracked in August, with the S&P 500 again outperforming mid-cap and small-cap stocks. Over the past month, the Russell 2000 Index saw an increase of ~0.3%, while the S&P 500 Index went up by over ~2%. This demonstrates that, amidst volatility and macro-level changes, well-established stocks should be favored as they provide reasonably good entry points.
With this in mind, let us look at the 10 Worst Performing Stocks to Buy on the Dip.
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Our methodology
To list the 10 Worst Performing Stocks to Buy on the Dip, we used a Finviz screener and online rankings to filter out the stocks that have fallen significantly on a YTD basis. Finally, we ranked the stocks according to their potential upside, as of September 27. We have also included the number of hedge fund holders for each stock, as of Q2 2024, which we sourced from our database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10) Rivian Automotive, Inc. (NASDAQ:RIVN)
Average Upside Potential: 46.55%
% Fall on a YTD Basis: ~45%
Number of Hedge Fund Holdings: 37
Rivian Automotive, Inc. (NASDAQ:RIVN) designs, develops, manufactures, and sells electric vehicles and accessories.
The company’s stock has seen a decline of ~45% on a YTD basis as a result of several challenges. There are concerns regarding Rivian Automotive, Inc. (NASDAQ:RIVN)’s ability to generate positive free cash flow over the upcoming few years. The continuous cash burn and elevated expenses of the company continue to weigh on the investors’ sentiments. Moreover, the EV market, mainly for the lower price segments, remains intensely competitive. The investors believe that the company’s spending on technology associated with AV/ADAS is expected to be higher than expected, which can further impact Rivian Automotive, Inc. (NASDAQ:RIVN)’s valuation. Recently, the company also faced supplier shortages, impacting the production of its second-generation vehicles.
On the other hand, the market experts opine that Rivian Automotive, Inc. (NASDAQ:RIVN)’s stock is at a critical juncture, and provides a strong value opportunity. They believe that the company continues to focus on advancements in production, with strategic partnerships expected to lead the growth trajectory moving forward. The market is extremely optimistic about its JV with Volkswagen. This JV is expected to result in significant cost savings, operating efficiencies, and future revenues, which should aid its stock price in the upcoming quarters.
Rivian Automotive, Inc. (NASDAQ:RIVN) continues to ramp up production for its second-generation R1 vehicles and has been developing the R2 platform. Its focus is also on vertical integration and cost reductions with the help of material and supplier cost savings. Moving forward, Rivian Automotive, Inc. (NASDAQ:RIVN) should see a progression in gross profit via improved variable cost, fixed cost leverage, and a rise in revenue per delivery unit.
Piper Sandler reissued an “Overweight” rating on the shares of Rivian Automotive, Inc. (NASDAQ:RIVN), setting a price target of $21.00 on 26th June. Meridian Funds, managed by ArrowMark Partners, released its second quarter 2024 investor letter. Here is what the fund said:
“Rivian Automotive, Inc. (NASDAQ:RIVN) is a US-based electric vehicle manufacturer focused on the design, development, and production of electric adventure vehicles, pickup trucks, and commercial delivery vans. We own Rivian because we believe the company is a future leader in the growing electric vehicle market with a strong brand, compelling products, and a vertically integrated business model. During the quarter, Rivian’s stock price was driven by its progress on cost reduction initiatives and management’s stated confidence in achieving positive gross margins by the end of 2024. The recent announcement of a joint venture with Volkswagen, involving up to $5 billion in investment, also significantly boosted Rivian’s financing outlook and validated its technology. We trimmed our position in Rivian given the strong performance in the quarter.”
9) Moderna, Inc. (NASDAQ:MRNA)
Average Upside Potential: 50.16%
% Fall on a YTD Basis: ~43%
Number of Hedge Fund Holdings: 39
Moderna, Inc. (NASDAQ:MRNA) is a biotechnology company, which is engaged in discovering, developing, and commercializing messenger RNA therapeutics and vaccines for the treatment of infectious diseases, immuno-oncology, rare diseases, autoimmune, and cardiovascular diseases.
In the recent past, the stock price of the company was significantly impacted due to challenges and setbacks. Recently, Moderna, Inc. (NASDAQ:MRNA)’s stock was pressured by the news that the company plans to reduce its Research and Development (R&D) budget by ~20% over the upcoming 3 years. This was because of the low sales projections and poor vaccine sales. Moderna, Inc. (NASDAQ:MRNA) plans to discontinue 5 research and development programs in a bid to slash $1.1 billion from its annual R&D budget by 2027. Apart from providing a light sales guidance for 2025, the company, on an operational basis, is now targeting 2028 to achieve a break-even.
Moderna, Inc. (NASDAQ:MRNA)’s stock price was hammered as a result of the short-term headwinds. These include COVID-19 vaccination rates, which are likely to continue to decline, and RSV taking some time to ramp. Out of the 10 new products expected by 2027, Moderna, Inc. (NASDAQ:MRNA) is expecting to file for approval of 3 this year. These include the new Covid/flu vaccine, the company’s next-gen Covid vaccine, and the RSV vaccine in high-risk adults who are aged between 18 to 59.
That being said, Wall Street believes that Moderna, Inc. (NASDAQ:MRNA)’s stock is well-placed to take off. The street is optimistic about the roll-out of its RSV vaccine, mRESVIA, in the US. Also, the company received a positive opinion from the European Medicine Agency. The company’s remaining product pipeline also exhibited progress, with positive Phase III results for the flu and COVID-19 combo vaccine. Its performance is expected to be aided by the recent alliances announced with BARDA and Mitsubishi Tanabe Pharma.
While Moderna, Inc. (NASDAQ: MRNA) expects a sales increase of 40% – 50% in Q3 2024, it targets to end 2024 with ~$9 billion in cash and return to growth in 2025. The company remains confident in the contribution from the EU market to its sales in 2025 and 2026. Moderna, Inc. (NASDAQ:MRNA) continues to respond to the dynamic vaccine market with the help of new product roll-outs and partnerships.
As per Wall Street analysts, the shares of the company have an average target price of $104.53.
8) Snowflake Inc. (NYSE:SNOW)
Average Upside Potential: 51.12%
% Fall on a YTD Basis: ~40.5%
Number of Hedge Fund Holdings: 69
Snowflake Inc. (NYSE:SNOW) offers a cloud-based data platform for various organizations in the US and internationally.
Over the past few months, the stock price of Snowflake Inc. (NYSE:SNOW) has witnessed a significant decline as a result of the challenges the company has been facing. The market experts believe that the acquisition of new business continues to be less vigorous. Also, a data breach, that took place in May 2024, had a significant negative impact on some of the company’s partnerships. Moreover, increased competitive pressures can also impact its long-term growth prospects.
The significant decline in Snowflake Inc. (NYSE:SNOW)’s stock price reflects broader industry challenges and investor sentiment, as the company continues to face challenges related to the shifting economic landscape. The market players might have concerns related to the translation of new features and Al investments to the consumption revenue.
However, Wall Street analysts remain optimistic about the growth prospects of Snowflake Inc. (NYSE:SNOW) because of favorable demand conditions for the DBMS software. The company’s base of customers’ workloads will mature, and together with significant switching costs, this might result in less volatile consumption revenue trends. Snowflake Inc. (NYSE:SNOW) should be aided by the sectoral tailwinds. The demand stems from the workloads pivoting to cloud environments. As a result, the company will be able to accumulate a larger share of the overall database management system market.
Snowflake Inc. (NYSE:SNOW)’s focus on driving consumption via sales force compensation should have a positive impact in 2026. Its competitive edge in analytics, data engineering, and Al should drive topline growth moving forward. The company appears to be well-placed to support enterprises leveraging data to build newer-generation Al applications.
As per Wall Street, the shares of Snowflake Inc. (NYSE:SNOW) have an average price target of $169.25. Insider Monkey’s Q2 2024 data revealed that the company was in the portfolio of 69 hedge funds, out of 912 hedge tracked by Insider Monkey.
Baron Funds, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:
“Snowflake Inc. (NYSE:SNOW) is a leading cloud data platform that is predominantly used for data analytics. The stock declined 16.4% as investors evaluated the impact of a recently announced CEO transition, an investment cycle driven by spend on AI, a cybersecurity incident, and a rapidly changing competitive environment. With GenAI capturing a larger portion of the public discourse, Snowflake’s positioning in the future data stack is under scrutiny by both investors and customers. We believe Sridhar Ramaswamy, the newly appointed CEO, can help the business more efficiently transition toward an AI-first world. While Databricks and other key competitors are presenting strong results, we believe Snowflake’s brand, existing customer base, and accelerating product innovation should allow it to continue to capture share in a relatively large and strategic market. Management continues to describe strong demand trends for its core data analytics, which is also demonstrated by the relatively healthy expansion rates among existing customers while new go-to-market initiatives can help grow the customer base further. Longer term, we remain excited about the Snowflake’s strategic opportunity as the data platform for its customers.”
