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Chip maker Qualcomm has seen its stock drop by almost 10% so far.
Qilai Shen / Bloomberg
S&P 500
closed at a record on Thursday, climbing over 4,000 for the first time. But not all shares have been divided into these gains so far this year.
While most S&P 500 stocks are positive for that year, about one in five fell in the first quarter of 2021. Some fell for fundamental reasons, while others appear to be suffering from changing market momentum from growth stocks to the cyclic ones and names of values.
However, once the downward wind drops, the names that are left behind may catch up, as their earnings estimates remain strong. In some cases, analysts have adjusted their expectations above this year. This presents a good opportunity to buy shares of fundamentally sound companies at discount prices.
Of the nearly 100 S&P 500 companies whose shares are in negative territory so far, about half expect to earn earnings per share in 2021 at least 20% higher than their 2019 tax earnings. Of these, approximately 30 to be maintained in 2022, which means that their 2022 earnings will increase by at least another 10% compared to 2021 levels.
To find shares whose earning potential may not be reflected in the share prices, Barron’s took those 30 names and eliminated all shares traded at over 30 times the earnings estimates of 2021. That left us with nine names.
Even better, analysts have raised their earnings estimates for 2021 and 2022 for all stocks since the end of last year, which means Wall Street is becoming more optimistic about them. These small names are largely growing stocks in the health, technology, telecommunications and consumer sectors.
Note: EPS 2021 and 2022 are consensual estimates.
Source: FactSet
Chip manufacturer
Qualcomm
(ticker: QCOM), for example, has seen its stock decline by almost 10% so far. Investors seem unimpressed by the company’s revenue in the first quarter, which was 62% higher than a year ago, but still missed analysts’ expectations. In the long run, the company – known for the chips that power smartphone processors – could benefit from the global transition to 5G networks and the spending proposed by the Biden administration for infrastructure.
Vertex Pharmaceuticals
Shares (VTRX) are another example where a recent withdrawal due to adverse events could have gone too far. In mid-October, the biotechnology company canceled the development of a promising drug once, after the results of the studies were disappointed. Its stock has fallen by 23% since then and has fallen by 10% so far. Despite the flop of that drug, Barron’s wrote in March that Vertex remains a driving force in the treatment of cystic fibrosis and is developing a promising course beyond it.
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