Most of these turnaround stocks should continue to see success as we head into the new normal
The world changed in 2020. There’s no doubt about it. The novel coronavirus pandemic swept across the globe. It shut down global economies. And it changed our way of life.
As it turns out, this change was a once-in-a-lifetime opportunity to buy turnaround stocks levered to the lifestyle changes that Covid-19 brought with it.
Covid-19 forced people inside. It accelerated the shift toward streaming platforms and online shopping. It boosted global environmental and social awareness, increased delivery platform usage and caused a surge in demand for hand sanitizers, masks and the like.
These changes were hugely beneficial for companies that provide those services. I’m talking streaming service providers, e-commerce platforms, clean energy companies, food-delivery services, so on and so forth.
Many of these companies weren’t doing so well before Covid-19.
Now, they’re absolutely on fire.
Will this recent momentum persist? For most, yes. And so this group of red-hot turnaround stocks that are winning big on the back of Covid-19-inspired lifestyle changes are stocks that you want to buy.
With that in mind, here’s a list of seven red-hot turnaround stocks that have soared high in 2020 as Covid-19 changed the world:
- NIO (NYSE:NIO)
- Overstock.com (NASDAQ:OSTK)
- Cinedigm (NASDAQ:CIDM)
- Arcimoto (NASDAQ:FUV)
- Blue Apron (NYSE:APRN)
- Waitr (NASDAQ:WTRH)
- Etsy (NASDAQ:ETSY)
Here’s a closer look at what makes each stand out in the “new normal.”
Turnaround Stocks Soaring High in 2020: NIO (NIO)
Year-to-Date Gain: +190%
First up on this list of turnaround stocks that are flying high in 2020 is premium Chinese electric vehicle maker NIO.
Coming into 2020, NIO was doing quite poorly. China’s auto market was struggling thanks to elevated U.S.-China trade tensions and pressure on China’s manufacturing economy. The electric vehicle market was struggling doubly because the Chinese government reduced EV subsidies in 2019. Against that backdrop, NIO struggled to sell many cars.
Delivery volumes dropped. Gross margins compressed. Net losses widened. And the cash-strapped balance sheet faced serious liquidity concerns.
Everything has changed in 2020.
Post Covid-19, China’s auto market has rebounded with vigor on the back of easing trade tensions, pent-up consumer demand and seemingly unlimited fiscal and monetary stimulus. China has committed to expanding EV subsidies for another two years. And NIO has begun to sell a ton of cars.
Delivery volumes are surging by 175% year-over-year every single month. Gross margins are expanding. Net losses are narrowing. And that cash-strapped balance sheet scored big financing, which has entirely eliminated liquidity risks.
Of note, this big turnaround is happening before China’s economy hits full stride, before the pandemic is over and before NIO launches its new 2020 vehicle.
As such, it’s quite likely that NIO’s robust turnaround momentum only gains stream over the next few months. As it does, NIO stock will keep charging higher.
Year-to-Date Gain: +440%
Of course, e-commerce stocks have been on fire in 2020. But few have been as hot as Overstock.com, which is the e-commerce industry’s best turnaround stock of 2020.
Long story short, Overstock.com has been the eyesore in a surging e-commerce market for a long time. Thanks to a lack of innovation on the platform and an overly broad focus from former management, Overstock.com’s share of the U.S. furniture e-retail market has slipped from 8% in 2015, to just over 3.5% in 2019, leading to negative sales growth against the backdrop of a market that was growing very quickly.
But, last year, the company got a new management team. That new management team implemented a far-reaching turnaround plan built on improving the platform’s search relevancy, enhancing the mobile web experience, expanding the product’s content on the site, leveraging data to improve pricing strategies, optimizing logistics for shorter delivery times and introducing free shipping on everything.
Those steps have worked wonders in making Overstock.com a better, more value-driven and more relevant e-commerce platform — at the same time that the e-commerce industry’s biggest tailwind ever, the Covid-19 pandemic, emerged globally.
The numbers speak for themselves. Revenue growth rates have consistently trended higher every quarter since the second quarter of 2019, including a +120% revenue growth rate in April. Gross margins have ticked up every single quarter since the second quarter of 2019, too. And contribution margin has risen at a steady pace, as well.
This robust turnaround should persist because: 1) the Covid-19 pandemic has permanently accelerated e-commerce adoption globally, and 2) Overstock.com has turned into a much better and more profitable version of its former self.
As such, I see the red-hot rally in OSTK stock continuing for the foreseeable future.
Year-to-Date Gain: +220%
Shares of entertainment company Cinedigm have taken off like a rocket ship in 2020 for one very simple reason: the company’s big bet on streaming is starting to pay off in a huge way.
Specifically, in 2019, Cinedigm management made a huge bet: they decided to put all their eggs in the OTT basket, and spend all their time and resources turning the company’s content library, which includes over 32,000 movies and TV shows, into a portfolio of streaming channels.
Those newly launched streaming channels — including Comedy Dynamics (a channel dedicated to stand-up comedy specials), The Bob Ross Channel (a channel dedicated to legendary landscape painter Bob Ross), Docurama (a specialized documentary streaming channel), CONtv (a streaming channel dedicate to all things Comic-Con related) and more — have dramatically expanded their distribution across the OTT landscape in 2020.
- In January, Comedy Dynamics landed on Samsung TVs, which is a big deal since Samsung is the No. 1 TV maker in North America.
- In late May, multiple Cinedigm streaming channels, including Comedy Dynamics, CONtv and Docurama, landed on Amazon’s (NASDAQ:AMZN) IMDB TV.
- A few weeks later, in early June, many of those same Cinedigm channels scored distribution through Vewd, the world’s largest Smart TV OTT software provider with an install base of more than 300 million Samsung, Sony, Philips and TiVo TVs.
In other words, in 2020, Cinedigm’s portfolio of niche streaming channels have gone from being available nowhere, to being available everywhere.
And Cinedigm’s viewership shape base has dramatically expanded.
Cinedigm exited 2019 with 5.6 million OTT viewers. That number rose by 73% to 9.7 million viewers in March. It rose another 36% to 13.2 million viewers in May. Management expects increased distribution to spark 100% growth in viewers over the next 18 months.
The growth won’t stop there.
There is ample and significant demand out there for animated content, documentaries, stand-up comedy and Bob Ross. Thanks to broad distribution agreements, Cinedigm has a visible and compelling opportunity to capitalize on that significant demand in the growing OTT channel over the next several years. As the company does that, CIDM stock will keep flying higher.
As the electric vehicle revolution has gained significant traction in the wake of the Covid-19 pandemic, three-wheel EV pioneer Arcimoto has not been left in the dust.
In fact, up 420% year-to-date, FUV stock has turned into one of the market’s best turnaround stocks.
Because this company’s innovative three-wheel EV platform finally launched in late 2019 — and the potential upside of this platform through both consumer and commercial applications over the next few years is huge.
Specifically, Arcimoto’s consumer-oriented product, the Fun Utility Vehicle (FUV), finally started deliveries in late 2019. For all intents and purpose, this vehicle looks like a next-generation ATV of sorts. It has potential to be the leisure urban vehicle of choice in the future.
Then there’s Arcimoto’s commercial-oriented products, the Deliverator and the Rapid Responder. The Deliverator is a three-wheel, compact delivery EV aimed at optimizing last-mile delivery logistics by improving speed and cutting costs. The Rapid Responder is a three-wheel, compact emergency EV aimed at enabling law enforcement, security and emergency services to more quickly and affordably respond to incidents. Production of these commercial cars will start in late 2020.
Across these various consumer and commercial verticals, Arcimoto’s potential is quite enormous. You could easily see the company sell thousands of FUVs in every major city across America, sign contracts with multiple delivery services for tens of thousands of Deliverators and deploy a half dozen or so Rapid Responders at each of the 50,000+ fire stations in America.
If so, this company will turn into a much bigger company than its current $170 million market cap implies.
Blue Apron (APRN)
Year-to-Date Gain: +90%
For years, Blue Apron was best known on Wall Street as that failed meal-kit delivery company whose IPO was a flop for the history books.
Then the Covid-19 pandemic emerged in 2020.
Covid-19 forced restaurants to close, and made many consumers wary of going into grocery stores for fear of catching the virus. As such, consumers turned to formerly niche online food options, such as meal kits. Demand for meal kits has soared in March, April, May and June. As it has, Blue Apron — one of America’s leading meal kit players — has seen its stock price soar, too.
The big question now: will this momentum persist even after Covid-19 hysteria fades?
I think the answer is yes.
For the first time in a long time, there are a ton of new customers in Blue Apron’s pipeline that arrived there without the company spending an arm and a leg on marketing. History says most of these new customers will churn, especially as restaurants re-open. But some will stick. Those that do stick, will tell their friends about why they like Blue Apron. Some of those friends will try it. Some will stick.
Lather. Rinse. Repeat.
It’s the start of a new growth cycle for Blue Apron. All the company needs to do to sustain this growth cycle is ensure that the number of new customers exceeds the number of churning customers.
That seems entirely possible to me. If Blue Apron can execute, then APRN stock will fly higher from here.
Year-to-Date Gain: +980%
Consumers have turned to online food delivery services like Uber Eats, Door Dash and GrubHub (NYSE:GRUB) amid the Covid-19 pandemic. As they have, one of the smaller players in this space — Waitr — has seen its share price soar nearly 10X.
Why such a huge gain? Because before Covid-19 emerged, Waitr was on its last legs. Growth was stalling out. Losses were mounting up. The balance sheet was running out of cash.
Then Covid-19 emerged.
The company recently reported that, thanks to restaurant closures and stay-at-home orders, April order volume rose approximately 20% versus the first quarter. A quick look at Google Trends over the past 90 days shows that Waitr search interest has stabilized around April levels, implying that the company has maintained its strong April momentum into May and June. It also helps that the Five Guys and Waitr linked up for a huge partnership in May.
All of this positive momentum has guided Waitr into profitable territory for the first time ever. Plus, the company is using cost-savings and increased scale to pay down debt.
In other words, Waitr is in as good of a fundamental position as the company has been in several years, with rising sales and improving profitability. At the same time, the online food delivery space is rapidly consolidating. Over the past four weeks alone, Just Eat Takeaway bought GrubHub and Uber (NYSE:UBER) bought Postmates.
It doesn’t take a rocket scientist to connect the dots.
It isn’t just likely that Waitr gets acquired by a DoorDash or an Uber in 2020, but it’s also likely that Waitr will have leverage in those M&A discussions and that, if taken out, such an acquisition will happen at a sizable premium.
For those reasons, I think the red-hot 2020 rally in WTRH stock has more runway ahead.
Year-to-Date Gain: +160%
Specialized e-commerce marketplace Etsy came into 2020 with some serious problems.
Growth was slowing. Margins were compressing. Profits were falling flat. And ETSY stock stumbled to a 5% loss in 2019.
All of those trends have reversed course with vigor in 2020, mostly thanks to the Covid-19 pandemic forcing increased consumer adoption of online shopping.
Sales volume on the Etsy platform rose a whopping 130% year over year in April. Margins are ticking higher. Profits are expected to rise 90% next quarter. And ETSY stock has surged 160% higher in 2020.
This momentum will slow over the next few months as physical shopping destinations re-open. But it won’t altogether disappear. Covid-19 has permanently accelerated e-commerce adoption. Consumers who pivoted to Etsy during this time, will stick around as long-term Etsy customers. And Etsy’s growth narrative, over the next 5+ years, will remain very strong.
As it does, ETSY stock will continue to be a winner on Wall Street.
Author: Luke Lango
Source: Investor Place: 7 Red-Hot Turnaround Stocks Soaring High in 2020