Here are 10 High-quality Stocks Having Their Largest Drawdowns
The market is near all-time highs, yet there are still many opportunities.
Here are 10 high-quality stocks having their largest drawdowns: 🧵
Forward P/E: 15
5-year Revenue CAGR: 17%
Year-to-date Drawdown: 33%
NVO is having one of its largest drawdowns.
Three factors contributed to this:
- Competition in the weight-loss segment.
- Danish Krone's decline against the USD.
- Worse than expected trial results.
All these factors are about to reverse.
Its oral Wegovy performed better than Eli Lilly's oral weight-loss pill, and it'll be launched late this year.
USD is also weakening as the Fed cuts rates, which means that the Danish Krone will recover against the USD.
I expect it to recover and climb above $100 within the next twelve months.
A line chart displaying the stock price drawdown for Novo Nordisk (NVO) over time, with a red line showing price fluctuations and a shaded area indicating drawdowns. The y-axis ranges from 0% to -40%, and the x-axis spans dates from February 21 to September 5. Text overlays include "NVO - Stock Price Drawdown Analysis," "Max: 50%, Current: 33.25%," and "-33.25%" at the lowest point. A watermark reads "Powered by biggr."
Forward P/E: 19
5-year Revenue CAGR: 10%
Year-to-date Drawdown: 43%
Most of the decline of the UNH stock price is due to industry headwinds.
The whole industry mispredicted the activity rates and the medical inflation for this year, and all of them are suffering.
However, the market acts as if UNH were having deeper problems due to the negative sentiment around the company.
It's addressing all those problems.
It filed for repricing for most of its plans, and it's dumping unprofitable policies with strict cost-cutting policies in force.
Most of the criminal allegations that surfaced in the media have already been proven either old or baseless.
There is an ongoing investigation into Medicare billing practices, but the company remains confident as it has passed all the previous audits.
I think the stock will quickly recover to all-time highs once the ongoing investigation is resolved, offering ~40 upside from the current levels.
A line chart displaying the stock price drawdown for UnitedHealth Group (UNH) from February 21, 2023, to September 5, 2023. The chart shows a significant decline, reaching a maximum drawdown of 60.34% and a current drawdown of 43.07%. The x-axis lists dates, and the y-axis shows percentage changes. A red shaded area highlights the drawdown period, with a label indicating -43.07% at the end. The chart includes a watermark from X.
Forward P/E: 24
5-year Revenue CAGR: 26%
Year-to-date Drawdown: 63%
The stock is having its worst drawdown since its IPO.
Rollout of their new Kokai platform has been slower than expected, and some customers resisted switching.
This led to lower-than-expected growth this year.
On top of that, Amazon is now heavily tapping into the programmatic advertising market, signing a contract with Netflix.
Though a competition is a threat, the market is exaggerating the discount rate.
Current price offers 100% upside potential, even if we assume just 15% annual growth and 30% net margin with 25 times exit multiples.
I think this is a highly achievable bar for the company.
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Forward P/E: 12
5-year Revenue CAGR: 8%
Year-to-date Drawdown: 26%
The market is overly pessimistic about the company's future despite having returned to growth.
Its take rates have been shrinking due to competition from other digital payment gateways, but it has managed to offset this by growing volume so far.
It's heavily tapping into the BNPL market and innovating with off-site ads.
Shareholder yield also reached a record high 11%.
I think it's an attractive bet here with very limited downside at 12 times forward earnings, given that the Fed is cutting rates and the USD is set to get weaker.
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Forward P/E: 11
5-year Revenue CAGR: 8%
Year-to-date Drawdown: 45%
FI is another payment gateway having tough times.
It's one of the largest merchant acquirers and infrastructure solutions providers to banks.
Growth has slowed down substantially due to the increasing competition in the market.
Yet, its new merchant side solution, Clover, is growing faster than the overall business and could reaccelerate the growth.
It's also set to benefit from rate cuts and a weaker USD, similar to PYPL.
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Forward P/E: 11
5-year Revenue CAGR: 8%
Year-to-date Drawdown: 10.5%
Greggs is the largest bakery chain in the UK.
The stock is having one of its largest drawdowns in the last 10 years due to the combination of:
- High inflation.
- Extremely hot weather.
- Elevated capital expenditures.
It struggled to pass increasing prices to customers while simultaneously experiencing reduced traffic due to hot weather.
All that happened in the middle of the peak capex cycle, as it's building two new distribution centers.
As the inflation subsides and we get into autumn, I believe the net income growth will return and the market will reprice the stock at around 20 times earnings.
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7. $INPST.AS
Forward P/E: 13
5-year Revenue CAGR: 36%
Year-to-date Drawdown: 10.5%
The leading parcel locker operator in Europe.
It's dominating Poland and rapidly expanding its locker network in Europe and the UK.
The stock is currently having one of its largest drawdowns due to two main reasons:
- Legal troubles with its recent acquisitions.
- Competition from its biggest customer in Poland.
The first one is about ot get resolved as the British High Court didn't issue an injunction and allowed it to carry on the restructuring of Yodel, its recent acquisition.
Second is due to the competition from Allegro in Poland.
Even if Inpost loses all the Allegro revenue, the effect will not be higher than 10% of its current revenues.
Though this will be a big hit, I think it can easily compensate for that loss, given its rapid expansion in Europe and the UK.
It's trading very cheaply at 13 times forward earnings.
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Forward P/E: 15
5-year Revenue CAGR: 12%
Year-to-date Drawdown: 21%
The market thinks that AI will kill Adobe's subscription business and thus price it to death.
I don't think this will happen.
First, Adobe subscribers are those who want more granular control over the creative process. AI isn't able to meet this demand currently, and I don't think it'll get there anytime soon.
Second, even if AI reaches a level where AI tools grant granular control to users, Adobe is better positioned than all the competitors to win that market. It already has the network and customer base; it doesn't need to recreate it from the ground up.
I think the market is overly pessimistic, and 15 times forward earnings is attractive for those looking for foundational positions.
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Forward P/E: 80
5-year Revenue CAGR: 40%
Year-to-date Drawdown: 42%
DUOL is also a victim of the "AI will eat the software" narrative.
Investors think that the education market is poised to get disrupted by AI, and thus hammering down the Duolingo stock.
Again, I don't think this will happen.
What I think will happen is that AI will be more and more integrated into education software and processes, but expecting people to use AI in a self-managed way to learn isn't realistic.
It isn't about the technology, it's about humans.
I don't think the number of people who will use AI by themselves for learning won't be more than the number of people who are using books now to learn by themselves.
Duolingo's value is the engaging experience tailored for every type of learner.
I don't think AI will completely destroy this market.
Yet, DUOL is still expensive at 80 times forward earnings despite the drawdown.
I would like to see it around 50 times earnings before I consider an investment.
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10. $Eli Lilly(LLY)$
Forward P/E: 26
5-year Revenue CAGR: 17%
Year-to-date Drawdown: 19%
It's pulling back for reasons similar to $Novo-Nordisk A/S(NVO)$ .
Competition in the weight-loss market is intensifying, and investors aren't satisfied with how its oral weight-loss pill, Orforglipron, performed in trials.
Though NVO will likely have a superior product in the oral segment, Lilly's Zepbound will remain as the gold standard among weight-loss injections until NVO launches Cagrisema.
Even after Cagrisema, Lilly will likely bring Retatridue to the market pretty quickly, preserving its upper hand in injectables.
I think the market is overly pessimistic about its future in the weight loss market, though I would like to see it around 20 times forward earnings before I seriously consider an investment.
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