by Clement Thibault
2015 wasn't a good year for the U.S. stock market. After a seven-year strong bull market fueled by favorable decisions from policy makers, the S&P 500 failed to close 2015 in the green. While the overall negative results were mild, -0.73%, some stocks fared worse than others, in some cases crashing over 70%. But as analysts like to say, past performance is not an indicator of future results.
With that in mind, and barring a major financial markets crisis or surprise, here are 6 stocks that we believe will rebound strongly in 2016. NOTE: Our predictions for 2016 upward trends are based primarily on fundamental factors such as predicted growth for revenue and earnings while the price-per-share predictions are based on technical analysis such as resistance points.
GoPro Inc.
- Opening Price 02/01/2015: $64.90
- Closing Price 31/12/2015: $18.01
- Loss per share: -$46.89, -72%
There were multiple reasons why GoPro (O:GPRO) shares spent 2015 tumbling. First, after its successful IPO on June 24, 2015 at $28.65, the high end of its expected range, concerns that the camera manufacturer—best known for its action cameras—was overvalued started to spread across the investing community as the stock’s price soared to $98.47 in October. Finally, in late 2014, investors took the time to ask, 'Is GoPro worth its asking price?' On November 4th, Citron Research predicted that shares would crash to $30, questioning the company’s branding as a media company. In addition, GoPro was once the only camera of its kind; It created its own market, it was revolutionary. No longer: the market has become crowded with action cameras, including Chinese models like the Xiaomi Yi Action Camera, selling for as low as $65, at least half the price of GoPro's cheapest offering, hurting GoPro's Q3 2015 earnings.
However, don’t give up on GoPro just yet: it has a solid foundation on which to rebuild its business and continue innovating. Most significant, the company is debt free; It hasn't borrowed money, nor does it have any bonds outstanding, allowing it flexibility and breathing room in which to rebound. Its Price-to-Earnings ratio (P/E) is a reasonable 15.54, suggesting that overvaluation concerns may have been unfounded. Other than quantifiable fundamentals, a major plus to the company’s credit is that GoPro has become a household brand. Knock-off cameras are referred to as GoPros, suggesting the brand itself is on its way to becoming iconic.
2016 Outlook: The company is prioritizing innovating and reinventing itself, with a strong presence on social media and a new GoPro drone set to launch in 2016. Last but not least, the rumors of a potential acquisition of GoPro by Apple (O:AAPL) could have a positive effect on the share price, whether the acquisition materializes or not. We predict the stock will bounce back to its original offering price. Predicted 2016 Closing Price – $25, +$6.99, +38%
Groupon Inc.
- Opening Price 02/01/2015: $8.34
- Closing Price 31/12/2015: $3.07
- Loss per share: -$5.27, -63%
Groupon (O:GRPN), which operates local e-commerce marketplaces, succumbed to the unfortunate "over-hyped IPO" stigma, similar to GoPro’s situation, above. The company originally traded for $28 a share when it IPO'd on November 4, 2011; It is now priced at $3 per share, a mere fraction of its original price. Nevertheless, with an approximately $1.84 billion market cap, Groupon is no potential penny stock. It’s a well established business, although its year-over-year Q3 revenue has fallen 5.6% in 2015 and its net income has been in the red for the first three quarters of 2015, with a Q3 bottom line of minus $27 million. If negative business results weren't enough, the departure of co-founder Eric Lefkofsky as CEO and subsequent appointment of former COO Rich Williams to the position in early November sent shares nosediving -29% during after-hours trading on November 3rd.
The market's reaction to the new CEO was harsh and likely premature. Williams came in with clear goals, stating the company will now focus on customer acquisition, streamlining international operations, and increasing profit margins. Which is all to the good. The company is firing 1100 employees and shutting down operations in 7 countries in an attempt to cut costs and return to profitability. Fundamentally, Groupon has a billion dollars in cash on its balance sheet, and a Price-to-Free-Cash-Flow ratio of 6.46, compared to 49.67 for the industry.
2016 Outlook: With a new, ambitious CEO in place, effective cost cutting and the cash that’s at Groupon's disposal, the company and the stock could be headed for a strong recovery in 2016. Shares seem to have found a balance around the $4 range before the sudden drop in November. After the dust settles, it should relocate back to that price point. Predicted 2016 Closing Price – $4, +$0.97, +32%
Qualcomm Inc.
- Opening Price 02/01/2015: $74.51
- Closing Price 31/12/2015: $48.98
- Loss per share: -$25.23, -34%
Qualcomm (O:QCOM), a global technology company that’s also one of the world’s leading chip makers, just couldn't get anything to go its way in 2015. It faced litigation over alleged use of illegal tactics to shut out rivals, considered spinning off its chip business and then decided against it, slashed jobs in an attempt to cut costs, and was left out of the 2015 Samsung (KS:005930) flagship smartphone, the Galaxy S6. If all that wasn't enough to make 2015 a bad year, Qualcomm had trouble collecting royalties from Chinese manufacturers, which hurt its main source of revenue and caused the company to miss analysts' forecasts by $700 million in the last earnings report. As one might expect, all this negative news affected the stock during the course of the past year, as setbacks every couple of months prevented shares from gaining any kind of upward momentum.
For 2016, Qualcomm will first and foremost re-establish the licensing revenue it crucially needs from Chinese manufacturers. It has begun doing so by inking an agreement on December 2, 2015 with Xiaomi, China's biggest smartphone maker. Ensuring that sales are not under-reported and patents are respected should set Qualcomm on the right track and on the positive side of analysts' estimates in 2016. In addition, Qualcomm’s newest processor, the Snapdragon 820, should find itself back into at least the US variant of the Galaxy S7. Qualcomm has ample growth opportunities in markets outside the smartphone industry, with potential growth in the brave new world of what is known as the Internet of Everything (IoE). This concept—of inter-connectivity across a myriad of devices and platforms—offers Qualcomm potential growth in such niches and sectors as, for instance, the smart automotive industry, wearable technology, healthcare, smart appliances. Essentially anywhere a chip can physically fit.
2016 Outlook: The last time Qualcomm rebounded, in October 2015, its stock price was heading toward $60. Q3 earnings derailed that. If all goes well, it should retest that price point toward to end of 2016. Predicted 2016 Closing Price – $62, +$13.02, +27%
Dick's Sporting Goods Inc.
- Opening Price 02/01/2015: $49.93
- Closing Price 31/12/2015: $35.35
- Loss per share: -$14.58, -29%
Dick`s Sporting Goods (N:DKS), one of the world's largest sporting equipment retailers, had a rollercoaster year. It started 2015 with a jump to $55 per share on the fourth trading day of January, on rumors that it was considering going private. Its final 2014 earnings report showed 10.9% growth in revenue and 12.1% growth in year-over-year earnings, propelling the stock to an all-time high of $60.33 in early April. Unfortunately, Q1 2015 earnings weren't up to expectations, falling 9.4% y-o-y from Q1 2014. A similar scenario played out over Q2 and Q3, with the former exceeding expectations while the latter failed to do so. Dick's most recent earnings disappointment likely is the result of a warm winter so far, which hasn't generated the expected volume of sales for winter gear—a substantial part of Dick's inventory. The latest earnings report propelled the share price down 16%, to $34.20, a drawdown of $26.13 from April's all-time high.
Still, there is some good news on the horizon for Dick’s. Colder weather has brought buyers back for winter gear, which will probably make up for at least some of the recent revenue losses. The franchise itself is solid, and historically has known good rebounds on the tail of bad earnings, often as soon as the following quarter, which is what happened in 2014. In addition, the company boasts a strong internet operation in addition to its bricks-and-mortar locations, allowing it to stay on top of current retail trends without losing revenue to competitive retailers. The e-commerce branch of Dick's might even prove to be one of its major strengths going forward. Those revenues have been rock solid, growing every quarter y-o-y in 2015, currently at $6.8 billion annually. Dick's main rival, the privately owned Sports Authority, hasn’t been able to grow its revenues since 2006 which stand at $2.7 billion annually, according to Moody's investor's Services.
2016 Outlook: Dick’s is a well-established business with room to grow, competitors that appear to be getting weaker not stronger, and is under-valued after its Q3 earnings report. We see it as a good candidate to rebound in 2016. We expect Dick’s will retest its all-time high once investors get good news regarding earnings. Predicted 2016 Closing Price – $60, +$24.65, +69%
Chipotle Mexican Grill Inc.
- Opening Price 02/01/2015: $686.00
- Closing Price 31/12/2015: $479.75
- Loss per share: -$206.25, -30%
Chipotle's (N:CMG) public offering back in 2006 was one of the food industry’s biggest success stories. Issued at $22 a share on its first trading day, the fast food chain's stock skyrocketed to an all-time high of $758.61 this past August, a 3448% increase in value. Chipotle's Q2 2015 earnings were just one of the reasons for this astonishing growth. Indeed, the stock gained 7% on the day of the earnings announcement alone. Chipotle's unwind began with disappointing Q3 growth, when at $4.59 it missed analysts estimates by 0.03 per share, although sales rose 12%, in line with projections. And then the E-coli fiasco happened. Chipotle was linked to the illness of 45 customers across the U.S., and had to temporarily close dozens of restaurants. To make matters worse, the Center for Disease Control (CDC) announced that the outbreak spread further than previously thought, affecting six states in total. This piece of news, on November 20th, sank Chipotle's share price by 12.5% on its own. Overall, over 500 people were treated for illness after eating at Chipotle, according to a report by Food Safety News. The chain now finds itself under federal investigation because of these outbreaks.
While there's no doubt it will take Chipotle some time to recover from the E-coli outbreak, the food chain has been rock solid in the past; When the storm settles, we predict it will bounce back. In 1982 McDonald`s (N:MCD) was hit with E-coli in 1982; Burger King (N:QSR) had E-coli problems in 1997, which forced it to recall 25 million pounds of meat. Kentucky Fried Chicken (N:YUM) struggled with the bacteria in 1999. Taco Bell (N:YUM) had E-coli traced back to its restaurants in 2006. Clearly, while an outbreak is unfortunate, it has happened to almost every major fast food chain.
2016 Outlook: Jumping in on the stock before the issue is resolved is risky, but after things stabilize, the company will be able to continue its good business practices. And that could very well happen before the end of 2016, with 2017 looking even brighter. The stock was trading sideways, around $575 before the E-coli problems surfaced, a price to which the stock will recover once the outbreak is under control. Predicted 2016 Closing Price – $575, +$98, +20%
Fossil Group Inc
- Opening Price 02/01/2015: $111.04
- Closing Price 31/12/2015: $36.56
- Loss per share: -$74.48, -68%
Fashion accessory producer and distributor Fossil Group (O:FOSL), finished 2014 strong with a Q4 rally to cover what had been a continuous drop in in its share price over the course of that year. Unfortunately for shareholders, by the end of January 2015, the stock had resumed the downtrend which continued to haunt it for all of 2015. Fossil's products aren't performing as well as they used to, with strong competition from such companies as the Swatch Group (VX:UHR) AG (OTC:SWGAY) and Guess? (N:GES)) stealing market share and undercutting prices. Missing already lowered Q3 earnings expectations on November 12th pushed the stock down 36% on the day.
Is the 68% drop in value justified? Maybe if people stop wearing watches, Fossil's core business. But the stock has probably been a victim of negative momentum, dragging the company below fair valuation with the current price reflecting a 5.37 P/E. Moreover, Fossil recently acquired Misfit, a wearable technology brand, in an effort to ramp up its smart watch offering. The company announced it was rolling out 100 wearables at the Consumer Electronics Show this past weekend.
2016 Outlook: With licensing deals in place with such high-profile fashion brands as Michael Kors, Burberry, Emporio Armani and DKNY, newly announced entry into the wearables market, and the inevitable realization of the true underlying value in Fossil by investors, the company's shares are primed for a strong 2016. The most recent downward trend was the first time shares broke $70 since flying past that marker in late 2010. Fossil will retest those waters again once it regains consumer favor, which we believe could be shortly. Predicted 2016 Closing Price – $70, +$33.44, +91%.
