10 Stocks Keep Crashing — I Ranked Them. Only 1 Is Worth Buying

Now, you may think the index looks relatively calm, but underneath the surface, there are several major companies that have already suffered bare market level declines. We've got companies like Qualcomm that's down more than 34% from its high. We've got Marvel down 38% and others such as Intri Surgical down 42% while many others are down more than 20%. And if we look in fact just month to date so only in July the weakness has accelerated we've got Marvel just in July that's fallen more than 30% Qualcomm down 7% as well as others that we're going to cover today including Intra Surgical Home Depot and many more. But we also have to cover the whole context because these declines not everyone tells the exact same story. Marvel, as we can see, that remains up strongly this year, while others, they've actually been falling for far longer. And now with earning season in full swing, those differences are becoming even clearer. We've got Dana and MCI, which just reported whilst several of the market's largest companies are still preparing to release results. Now, if we look for example just at the Mac 7, they're still expected to grow earnings by around 31% this quarter compared with around 23% for the remaining 493 companies. But that advantage, well, it's projected to narrow throughout the year. And by the fourth quarter, the remaining 493 companies, they're actually expected to grow slightly faster. Now, you can argue that this creates opportunities beyond the market's most crowded names. But a large decline can represent either a healthy reset or in fact the beginning of a genuine fundamental breakdown. And this short clip explains that very well. You know, it's a re it's a really healthy tape. The fact that we had these stocks 20 30% draw downs. You would have thought, oh no, now the whole market's going to sell off cuz it lost its leadership. Number one, that didn't happen. And number two, this has been a really helpful reminder for traders ain't no such thing as one-way trades. It doesn't exist. The best stocks in the market, the most powerful names, the best earning stories, they're going to have down days, they're going to have down weeks, or even a down month on the way toward higher prices. We need to get that reminder. If they just go parabolic every single day the market opens, then you're in for a real crash. And fortunately, this is what keeps the market honest. this to unwind some of the leverage. >> And that is the distinction we need to make today. A healthy correction and a value trap can look almost identical on a price chart. And it's also worth pointing out that when we look at the S&P 500 based on analyst recommendations, well, it's green pretty much everywhere, meaning the majority of the stocks in the market analysts are saying to buy right now, which makes this episode incredibly important. So, I'm putting 10 beaten down stocks through exactly the same test. Recent performance, growth, Wall Street ratings, valuation against historical averages, and my own intrinsic value model. What I'm also going to do is calculate the margin of safety, and use a reverse DCF to reveal exactly how much future growth each current share price is already assuming. And by the end, I'll rank all 10 from weakest to strongest. But despite some enormous declines, only one I would say right now offers the best combination of quality, growth, and valuation that I'd seriously consider buying now. So, let's begin. And kicking it off at number 10 is Marvel Technology. Even rebounding yesterday by around 7%. While we can see just in the last 30 days, the company still down over 30%. And this is largely part of the wider semiconductor unwind rather than collapse in Marvel's underlying business. We can see that analysts still rate the shares as a strong buy. And in fact, Marvel, it has the strongest headline growth profile in the entire ranking. Revenue will that grew year-over-year at 34% and forward revenues expect to accelerate by around 43. And it's worth pointing out that the company's benefiting from enormous demand for AI infrastructure and custom silicon. While its latest results show that bookings and customer commitments, well, in fact, they remain extremely strong. If we go back and look at the growth numbers, well, forward ebit, that's projected to climb over 50% while analysts are expecting earnings per share over the next 3 to 5 years to compound 35%. Now, Wall Street's average price target overall sits at $254. That implies around 22% upside. But analyst optimism does not automatically mean the current valuation offers protection. As I just highlighted earlier, if we look at the S&P overall, while analysts are pretty much saying over 90% of stocks are near strong buys today. And despite the 32% decline, Marvel still trades near 46 times forward earnings. Compare that with a 5-year average of around 30 times. that looks to be potentially overvalued. And when we look at the blue tunnel from simply safe dividends, well, it points out the intrinsic fair price. There's a massive disconnect between where it sits today and the uptrend. I mean, this really only started, we can see from the last few months. Otherwise, prior to that, this one was trading in an undervalued signal. And more importantly, which we can see even when we zoom out, the actual underlining fundamentals of the company, well, they've not grown massively. The share price got ahead of itself. And we can see that massive decline that looks to be continuing today. Now my base model assumes 15% annual free cash flow growth and that values the shares at around $93. Even the 20% growth case that reaches 126. That leaves the stock when we look today. In fact, trading at more than twice my estimated intrinsic value, a large share price fall is not created a meaningful margin of safety. And the reverse DCF, well, it requires around 28% annual growth. Marvel may deliver exceptional results, but too much success is already priced in, placing it today at number 10. And at number nine, we've got the Home Depot. Now, the shares are down 14% over the last 6 months as elevated mortgage rates continue suppressing housing transactions and major renovation spending. Now, the latest quarter was not disastrous. Home Depot slightly exceeded expectations, but customers continued postponing expensive projects and management maintained a subdued fullear outlook. If we take a look at the current fundamentals, while it does remain weak, revenue was up only 2.2% year-over-year while we can see in fact EBIT DAR, EBIT as well as earnings per share, every single one of those while they declined compared with the previous year. Now management overall they do expect some improvement but forward revenue growth is still below 4% while forward earnings growth is forecasted at only 2.6% and Wall Street while in fact they do remain positive with an average price target around $370 that only really represents around 12% upside is one of the lowest targets in today's entire ranking. And Home Depot also trades around 22 times Ford earnings, only slightly below its 5-year average of 23. The stock is not what I'd say historically depressed. In fact, we can see it here mid to the end of 2022. This was trading around a forward P of 16. And then we look at the blue tunnel. Well, it's not sitting below the bottom end, although we've only really seen that once and just for a few days in the last few months. It's sitting what I call probably a potential undervaluation signal slashreasonable when we look over the last five and 10 years. Again, the fundamentals at least over the last few years haven't moved that much. In fact, there were periods where it did drop. And this is also one where it does give investors, if they're patient, the chance to buy this in a severely undervalued level. Now, my base case assumes around 8% annual cash flow growth and produces a value of $342. That's only around 3% above the current share price. The low case values Home Depot below $300 while Wall Street expects a recovery towards $370. The difference shows how dependent the investment case is on housing improvement. And the market, as we can see, it already requires 7.6% annual cash flow growth above expected long-term earnings growth. Home Depot is excellent, but I need a much lower entry price today. Now at number eight, we've got McDonald's. And the shares are down around 14% this year as investors worry that pressure on household budgets is weakening demand among the lower income customers. And the latest results remain resilient. But US comparable sales failed to satisfy the market while management highlighted pressure from fuel prices and cautious consumer spending. Now revenue that still increased. We can see year-over-year by around 7%. While in fact EBIT, DAR, EBIT, as well as earnings per share, they all grew by around 7%. Yes, the business is slowing, but I wouldn't say it's deteriorating. Now, forward growth for McDonald's is more modest. Revenue, EBIT D, and operating income are expected to increase by around 5 to 6% with long-term EPS around 6.7. And analysts do retain a buy rating, average price target $327, which implies around 24% from today's value. And it also trades at pretty much the lowest valuation in at least the last 5 years, sitting 20 times forward earnings, while the 5year average sits at 24. And we notice an undervaluation potential signal here. Something we've seen in the last few months. Zoom out to the last 5 10 years. This is one where you do get chances to buy it in a similar scenario. Not that often, but they do appear. Good to see that over the last 20 years, the underlying metrics, while not consistent, do move in the right direction. And combining the cash flow, dividend, and historical multiple models, we get an intrinsic value around $313. It gives a headline margin of safety close to around 16%. However, the standalone DCF that reaches only $266, almost exactly today's price. And the reverse DCF, it also requires pretty much 10% annual cash flow growth. So, I would conclude here for McDonald's. It's cheaper than normal, but its expected growth does not fully justify the assumptions embedded in the price. I would watch it, but I wouldn't call it a buy here today. At number seven, we've got Curig Dr. Pepper. And this is the only company here that has not meaningfully crashed. The shares, as we can see, are up around 8% this year. Although, when we look, it is sitting pretty much midpoint of the 52- week range with the 52- week high at $36. So it's sitting around 20% below that point. Now there is major development in its acquisition of JD Pete which significantly expands Kurig's global coffee exposure but also creates major execution and balance sheet risk. If we take a look at the growth well we can see the transaction heavily influences the forward numbers. revenues expected to rise by around 25% while EBIT DAR as well as in fact operating income they're forecasted to grow by around 15 to 16%. So on an underlining basis curig Dr. Pepper. Their current revenue growth is closer to 9% while forward earnings growth remains below 10. It's improving growth but not extraordinary growth. And Wall Street today rates the company as a buy but the average price target $35 implies only around 15 to 16% upside from today's share price. Now the relative valuation it is appealing. CUR trades around 12.7 times Ford earnings much lower than its 5year of 17.4 before, but we can see it's been consistently compressing. And when we take a look at the blue tunnel, well, fundamentals not really improved over the last year. While investors haven't really been buying this one, where we do notice it's been sitting in a consistent undervaluation signal. Look at the last 5 10 years. Yes, there has been improvements, but it's not been meaningful enough. And going all the way back to mid 2023, this one seems to consistently trade at the exact same level. Now my blended valuation reaches around $36. We can see creating a margin of safety near 17%. But that figure is lifted by both the dividend and historical multiple models. The standalone DCF while we can see it produces a value of only $27 below the current price. While the reverse DCF requires around 9% annual cash flow growth. So with substantial acquisition debt and integration risk, I need more protection than the current price offers. Curig appears inexpensive but finishes only seventh. And number six, we've got Carnival. The stock is down more than 14% this year despite cruise demand remaining strong. And the business continues its post-pandemic recovery. We can see trading near 52- week lows. While we get a triple buy rating from every single analyst and their latest quarter beat profit expectations, but it's following quarter guidance disappointed because of higher fuel expense, geopolitical disruption and continued pressure on their operating costs. And when we take a look at fundamentals, revenue year that was up around 5%. While we can note both EBIT DAR as well as operating income rising close to 9% forward earnings per share that's expected climb by around 23%. And the earnings growth here is partly driven by operating leverage as Carnival fills more capacity and continues rebuilding margins from the disruption suffered during the pandemic. And we highlighted that all three ratings were positive. Wall Street's price target on average 3550. Well, that implies more than 35% upside. When we look at valuation, we can see it trades below 12 times forward earnings and around 8.3. When we take a look on a forward basis, EV to EBIDA against both the sector and its expected earnings growth, the stock does appear inexpensive. Now, my base model assumes only 6% annual cash flow growth and that values a share around $34. Even the conservative 4% case, it produces a value of $27, which is near enough today's value. Now, what happens with this? It creates at the middle rate a margin of safety near 25% while as we said Wall Street they see upside of over 30%. So mathematically Carnival is one of the cheapest companies here. And the reverse ETF well it requires below 4% annual growth far below forecast earnings growth. Very little operational improvement is required to justify today's price. But bear in mind Carnival still carries nearly 29 billion of debt and remains extremely cyclical. The valuation passes, but the balance sheet prevents it entering into my top five today. Now, at number five, we've got Dana, which in fact, we can see here, fell 11%, a single day collapse, its worst sell off in more than two decades. And the shares, well, when we look year to date, they're down almost 22% this year. Now, worth pointing out that they beat headline revenue and earnings expectations. But the details disappoint investors with a buyer processing growth weakening and significant expected revenue shifted into next year and management narrowed their fullear core revenue outlook to between 3 and 4%. Now, current revenue growth that's only 4.6% although forward growth it is expected to improve. It does ultimately matter because investors have been paying for a stronger biorocessing recovery. The earnings decline therefore reflects a real reduction in near-term expectations. Not only market panic where we can see it's trading near 52- week lows and Wall Street do give it a strong buy rating and we can see that analysts are forecasting long-term growth of around 9%. So it remains a compounder but its recovery has started to slow. Wall Street as we just pointed out do give it a strong buy. Average price target $229. It represents around 28% upside following the earnings collapse where it trades today at around a forward peak of 21. That's substantially lower than their 5year average of 27. So obviously the relative valuation is become much more attractive. And then when we look at the blue tunnel where we can see that drop after just yesterday's crash that does give an undervaluation signal zooming out the last 5 10 years. Well this one actually from 2022 has been in a decline. Just something to bear in mind. And my blended model produces an intrinsic price of $26. That's around a 13% margin of safety supported by both the historical multiple and the dividend valuation. Now, the standalone DCF, it is more cautious. It values the company at $165. While the reverse DCF requires around 7.9% annual growth, so DHR is no longer expensive, but it's not yet deeply undervalued on cash flow. I would add it to the watch list, but it finishes in fifth place today. And before we get to the top four, just to let you know, I've released my latest weekly article where we run through eight quality stocks with only three passing the 20% margin of safety test. As always, you can click below, sign up, and read all of these straight away. We then move on to number four, Northre Groomment. Now, this stock is down 23% over the last 6 months, and it remains more than 30% lower than its 52- week high of $774. And the latest report, it was actually stronger than the share price reaction suggests. Northre exceeded expectations, raised its fullear outlook, and reported a record backlog near 105 billion. Now, revenue growth, it does remain modest at around 5%. That's on a year-on-year basis. But current EBIT DAR as well as in fact EBIT both of these numbers are very strong while diluted earnings per share that was up more than 26%. Investors however they focus on program costs and weaker margins across parts of the defense and space businesses. Some earnings support also came from a lower tax rate. And we also have to point out when we look back at their growth while forward revenue is not that impressive. We can see revenue as well as earnings. They're both expected to rise by around 5% with long-term EPS. That target sits around the 6% level. And analysts retain a buy rating average price target $655 implying around 28% upside. Although the lower target, as we can see, that sits much closer to today's price. And Northrip trades around 18 times forward earnings, pretty much around this 5year average of 19. It's reasonable rather than historically cheap. And when we take a look at the blue tunnel, well, we can see it's sitting right there below the bottom end, a potential undervaluation signal. When we zoom out to the last 10 years, this one actually more often than not does trade at a reasonable level. And now we're seeing it slightly below. And combining my cash flow, dividend, and historical multiple models, we get a value that sits around the 677 mark and the headline margin of safety of around 24%. But the standalone DCF, it reaches only $545, roughly 6% above the market price. And the reverse DCF also requires growth slightly above long-term earnings forecast. So their backlog and raise guidance provides downside support, but the valuation model, what they disagree too widely for a top three position, so it finishes in fourth place. Entering the top three is Qualcomm. The stock has fallen around 24% in 1 month as semiconductor sentiment weakened and concerns returned around smartphone demand. Now unlike Marvel, Qualcomm's near-term slowdown is genuine. Smartphone customers have reduced orders. Chinese Android demand remains soft and Apple is gradually developing more chips internally. And their current revenue growth while it was only 5.2% 2% while we can see EBIT dot and their EBIT in fact while they had declined and diluted earnings per share that was down nearly 7% from the previous year. Now Qualcomm is attempting to offset that pressure through automotive connected devices and future data center products but those businesses still need time to become major profit contributors. Forward revenue growth that's also sitting at just 4%. Forward earnings growth that's sitting at only 2.4 4 and long-term EPS sitting at 2.9. Now, Wall Street, they do have a hold rating, although the average price target at $221 implies around 28% upside from the price today. And if we look at Qualcomm on a forward earnings basis relative to its own history, it doesn't look cheap. It's sitting around the 1718 mark. Their 5-year average does sit below that at 14. Hence why we take a look at the blue tunnel we can actually see a potential overvaluation signal whilst also noting the underlying fundamentals since the beginning of the year while they have been dropping. That's something we can also see going back to mid22. Now the cash flow valuation actually tells a completely different story even assuming no growth so zero that produc a price of $185 that's above today's value of $170. my 5% base case. Well, that reaches $255 and that implies 50% upside and margin of safety above 30%. And Wall Street's target is also substantially above the market price. The reverse DCF that implies cash flow declining by around 1.3% annually. The market's price longerterm deterioration, not simply a temporary slowdown. So, Qualcomm carries genuine risk, but almost no growth is required to outperform current expectations. It becomes the first company here where I'd seriously investigate buying. And at number two, we've got in surgical. The stock is down by around 38% this year and recently suffered another sharp decline following their quarterly results. Yet, the quarter itself remained excellent. revenue increased 19% adjusted earnings reached $280 per share and both figures exceeded Wall Street expectations and current revenue growth that exceeded 20%. While we can see EBITDA and EBIT, both of these are growing above 20%, few companies of this size maintain that kind of momentum. And the sell-off reflected unchanged procedure growth guidance and concerns that changes to insurance coverage could delay some surgeries, not a collapse in demand for robotic procedures. And you'll note that forward revenue, well, that remains above 16%. While both EBIT DAR and EBIT, both of these sit around the 20% mark, longerterm EPS that sits around 16, and analysts actually see the company near the $500 mark. That implies more than 40% upside from today. The largest Wall Street opportunity in today's ranking. Now, the company does remain expensive compared with the healthcare sector. We can see it nearly triple digit in some of these comparisons, but it is also dramatically cheaper than its own history pretty much for every single metric. Their forward P sits at 32. Their 5year average that's at 59. That's a 45% discount today. And my conservative 10% growth rate produces a value of $354. Pretty much matching today's share price to the base case of 15. Well, that hits $477. And this ultimately creates a margin of safety of 27 cent while Wall Street as we said to upside over 40. The growth and valuation finally appear aligned. And as always, important to point out the reverse DCF here requires around 9.8% annual growth, well below expected long-term earning growth. The market's no longer requiring a perfect outcome. So, Intuitive Surgical offers the strongest growth in cleanest balance sheet here. It narrowly misses first place only because my base model assumes a sharp initial cash flow increase which is based on analyst estimates. And in number one, we've got MCI. The shares were down more than 10%. That was immediately after reporting the earnings, erasing several months of gains in just one single trading session. Now, the seller was primarily caused by higher projected operating expenses and increased interest costs, not collapsing demand for MSEI's index analytics and private market products where their revenue continues growing around 11% while both operating income as well as diluted earnings per share. Those in fact are increasing at strong double-digit rates. MSGI's recurring revenue model that remains intact. However, higher spending may reduce near-term margins, but management is investing in data, technology, and product expansion that could support the company's long-term competitive positioning. Forward revenue as well, well, that remains above 10%. Forward earnings growth, that's projected around 15% and analysts are expecting around 14% annual growth over the next several years. Wall Street well they retain a strong buy rating average price target close to $700 which implies around 24 25% upside and it trades below 27 times Ford earnings compared to their 5year of 36.4 for the stock is genuinely discounted relative to its own history and when we look at the blue tunnel the undervaluation signal is apparent. However, I would point out in fact over the last year the signal has been very consistent over the last 5 10 years. Nice to see fundamentals moving in the right direction but actually investors haven't been willing to buy this at the discount. In fact there was a period where this company was trading at a premium now it looks to be quite considerably sitting there in the undervalued level. Now, my conservative 12% growth case for MSCI is valued at $600 already above in fact today's day's price. The 14% base case reaches around $689. And this ultimately creates a margin of safety of 19% while Wall Street's forecast, as we said, points around 25% upside. Both methods produce similar conclusions. And more importantly, the reverse ECF that requires around 11% annual cash flow growth below expected long-term earning growth and close to current revenue growth below both their 5-year and their 10-year keer. Now, MSCI offers recurring revenue, durable competitive advantages, and realistic embedded expectations. It provides the strongest balance of business quality, growth, and valuation in the ranking today. So, the 10 companies demonstrate why a major share price decline should only be the beginning of the analysis, not the reason to buy a stock. Marvel, as we saw, has fallen sharply, but its valuation still requires an exceptional outcome. It ranks 10th because the growth is outstanding, but the margin of safety is absent. The Home Depot and McDonald's are both cheaper than before, but in fact, their cash flow models show that meaningful recoveries are already embedded in the current price. curig that appears inexpensive on earnings, but acquisition leverage and the weaker standalone DCF creates more uncertainty than the headline valuation suggests. Carnival offers well genuine mathematical upside and undemanding expectations. However, its large debt burden and economic sensitivity prevents cheapness from becoming sufficient on its own. Dan here as well as Northrup. They're both strong businesses, but their standalone cash flow valuations offer much less upside than their blended models initially suggest. And Qualcomm, well, it provides the most pessimistic embed expectations. Pretty much no growth is required, but its weak near-term earning cycle makes it a higher risk opportunity. And intuitive surgical, it offers the best growth profile and came extremely close to winning. Its current price finally looks defensible after years of premium valuation. And MCI, well, it requires approximately 11% growth while analysts expect closer to 14. That difference provides room for the company to outperform what the market currently assumes. So, of these 10 beaten down stocks, MSI is the one I would be seriously considering buying today. But, as always, valuation determines the price, not simply the quality of the company. But let me know your own thoughts in the comments below, whether you agree, maybe you would change the ranking slightly. And don't forget to sign up to the weekly newsletter. We drop one every single week where we cover severely undervalued stocks as well as what's going in the market. Most importantly, have a great day. I'll see you all on the next