While the adage “buy the dip” often rings true in volatile markets, it’s currently proving to be a difficult strategy to execute. The S&P 500’s impressive rally in 2024 has left few opportunities for bargain hunters. Of the 503 companies in the index, a whopping 229 are up more than 20% year-to-date, while just 26 have fallen by 20% or more. For value investors, this scarcity of “dips” to buy is making stock picking a real challenge.
The hardest-hit sectors in 2024 have been healthcare, consumer cyclical, and consumer defensive, each with several stocks down 20% or more. Here are three companies from these sectors that show promise for a turnaround in the remaining months of 2024 and into 2025.
Healthcare Pick: Dexcom (DXCM) – Preparing for a Comeback
Dexcom (NASDAQ: DXCM), a leading player in the continuous glucose monitoring (CGM) space, has seen its stock price drop by nearly 41% in 2024 and 27% over the past year. Despite the disappointing performance, the company is positioning itself for a recovery. In Q2 2024, Dexcom launched its new Dexcom ONE+ system in several European markets, expanding its reach to 18 countries outside the U.S.
While sales growth from new customers slowed slightly in Q2, Dexcom still reported a 15% revenue increase to $1.0 billion and a 23% rise in non-GAAP operating income to $195.4 million. The company’s guidance for 2024 projects $4.025 billion in revenue, representing a 12% organic sales increase and a non-GAAP operating margin of 20%.
A temporary setback in sales growth stemmed from a realignment of the sales force, but this appears to be a strategic pause to accelerate growth into 2025. CFO Jereme M. Sylvain emphasized the company’s commitment to expanding its geographical footprint, enhancing market access, and leveraging its product portfolio to capture new opportunities. Challenges remain in the DME (durable medical equipment) market, but Dexcom is actively working to reclaim lost market share.
With CGM technology gaining traction in the healthcare sector, and despite competition from GLP-1 drugs, Dexcom’s fundamentals suggest potential for a recovery to triple digits over the next 12-18 months.
Consumer Cyclical Pick: Etsy (ETSY) – Resilience Amid Headwinds
Etsy (NASDAQ: ETSY), down nearly 32% year-to-date and 23% over the past year, continues to face challenges as consumer spending on non-essentials like arts and crafts has taken a hit amid higher living costs. This has been reflected in its Q2 2024 results, where consolidated gross merchandise sales (GMS) fell by 2.1% to $2.9 billion, and GMS per active buyer declined by 3.2% to $124.
However, there are positives for Etsy. The company’s take rate increased to 22.0% in Q2, up 110 basis points year-over-year, indicating better monetization of its platform. Furthermore, its adjusted EBITDA rose by 7.9% to $179.4 million, with a margin of 27.7%, suggesting operational efficiency amid market headwinds.
Etsy is currently valued at 16.6 times EBITDA, the lowest multiple in the past decade. For value investors, this represents a potential buying opportunity. With a solid business model and a loyal customer base, Etsy could see upside if consumer spending rebounds.
Consumer Defensive Pick: Brown-Forman (BF.B) – Ready to Rebound
Brown-Forman (NYSE: BF.B), the Louisville-based maker of iconic whiskey brands, is down over 21% in 2024 and nearly 35% over the past year. The company has been hit by a pandemic-related slowdown as wholesalers overstocked inventories, which has affected its usual 4-5% annual revenue growth rate.
Yet, Brown-Forman’s outlook is starting to improve. For fiscal 2025, the company anticipates a return to growth with organic net sales and operating income expected to rise by 3%. Despite a 1% decline in net sales in 2024 to $4.18 billion, operating income surged by 25% to $1.41 billion, reflecting a robust 33.7% operating margin.
By most valuation metrics, Brown-Forman is trading at its cheapest levels in a decade. For investors seeking a defensive play with strong fundamentals, this could be an opportune time to consider adding shares.
Key Takeaways for Investors
With the S&P 500 largely in the green this year, finding undervalued stocks requires a discerning eye. Dexcom, Etsy, and Brown-Forman each represent compelling cases for a rebound, driven by strong business models, strategic initiatives, and improving market conditions. As we move toward the end of 2024, these three stocks could offer significant upside potential for those looking to capitalize on market dips.