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3 Cheap Stocks to Buy Near Their 52-Week Lows, According to Wall Street

Barchart - Fri Sep 29, 2023

Growth stocks have been hit hard over the last couple of months, as the combination of stubbornly high inflation, a hawkish Fed, rising bond yields, and economic trouble out of China have all spooked investors. And while some investors are seeking out safe havens, those with bigger appetites for risk just might be looking for heavily sold growth names to buy on the cheap.

With this in mind, here's a roundup of three growth stocks trading near their 52-week lows - all priced under $20, but with the potential to double, according to Wall Street analysts. Now, I won't sugarcoat it; these stocks aren't exactly rock-solid fundamentally, so there's likely a good reason behind that bargain price tag. However, let's see why analysts still like these three beaten-down growth names.

Peloton Interactive: A Fitness Leader at a Bargain Price

Peloton Interactive (PTON) is a company that's all about interactive fitness fun. They offer a lineup of exercise gear like smart bikes, treadmills, and rowers, paired with complementary digital services. You get to join live or on-demand fitness classes and even enjoy some personal coaching – all through their subscription service.

PTON's stock is currently hanging out at $4.90, just a hair above its 52-week low of $4.30. That's quite a tumble from its recent high at $17.86 back in February 2023. 

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Why the sell-off, you ask? A mix of reasons, really. People have been heading back to gyms and outdoor adventures post-pandemic, giving the cold shoulder to Peloton's at-home exercise gear. There were also those not-so-great headlines around recalls. And let's not forget the competition, as giants like Apple (AAPL), NordicTrack, and Echelon have all thrown their hats in the “smart fitness” ring. Plus, Peloton's digital subscription business has hit some post-COVID speed bumps, with slower growth and fatter losses.

Still, there are plenty analysts out there who think Peloton's got some fight left. They've got a dedicated fan club and a name that rings a bell in the fitness world - and a partnership with another strong brand in Lululemon (LULU), as of this week. Plus, they're taking their show to Canada for the holidays with a shiny new toy - the Peloton Row, a connected rowing machine that offers a full-body workout and a variety of classes. 

So, where do the experts stand? The consensus among 23 analysts leans towards a moderate buy. Eight say it's a “strong buy,” 14 say “hold,” and one solitary contrarian recommends a “strong sell.” The magic number - the mean target price - is $10.09, which indicates a whopping 105.9% premium to Thursday's close. Dream big, right? 

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Chewy: An Online Pet Retailer with a Loyal Fan Base

Chewy (CHWY) is the online pet paradise where you can find everything your furry friend desires, from kibble to toys. They've got fulfillment centers across the U.S., offering a speedy and complimentary shipping service. Plus, they've got a subscription-based service called Autoship, helping you save on the regular pet supply run. Need help at 3 a.m. because your cat's acting like a ninja? Chewy's got 24/7 customer service. They're all about pets, and it shows.

But let's chat stocks. Chewy's not far from its 52-week low of $17.51, and has lost 50% year-to-date - valuing the company at $7.60 billion. The company also recently filed for a mixed-shelf offering, further diluting existing shareholders’ value.

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The stock's challenges include heavyweight competition, with Amazon (AMZN) and other rivals vying for a piece of the pet product pie. Chewy's also been shelling out on supply chain and logistics, which isn't cheap. 

But don't count Chewy out just yet. Chewy has a posse of devoted fans and a brand that's as recognizable as your pet's favorite squeaky toy. Chewy is also looking to grow its presence in international markets, starting with Canada this year. That's a whole new country's worth of pet-loving customers to tap into, and will allow Chewy to reduce its reliance on the U.S. market

So, what's the analyst consensus? CHWY's a moderate buy, say the 20 experts in the know. Eight give it a hearty "strong buy," three say "moderate buy," eight opt for "hold," and one throws in a "strong sell." The mean target price is $37.05, hinting at a steep 102.7% upside to Thursday's close. 

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Purple Innovation: A Bedding Innovator with a Strong Brand

Purple Innovation (PRPL) specializes in creating cozy mattresses, pillows, and bedding with its patented Purple Grid technology. They're all about top-notch sleep comfort and breathability, available online and in stores. The company has a modest market cap of just $159 million.

Now, let's tuck into the stock story. PRPL closed Thursday at $1.65, snuggled up close to its 52-week low of $1.51. It's safe to say the stock has had a rocky ride since hitting a high of $6.76 back in February 2023.
 

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What's been ruffling their sheets lately? Well, it's those pesky rising costs – think raw materials, labor, and getting stuff from point A to point B. That's put a squeeze on PRPL's margins and bottom line. And then there's the fierce competition, with mattress mavens like Tempur Sealy (TPX) and Sleep Number (SNBR) nipping at their heels. Against this backdrop, PRPL reported a wider net loss of $37.5 million in Q2 2023, compared to $10.4 million in the same quarter last year.

But hold onto your pillows; there's hope on the horizon. Some savvy analysts reckon Purple Innovation's got the chops to bounce back. They just unleashed a truckload of new goodiesas part of their "Path to Premium Sleep" plan, which CEO Rob DeMartini called the "largest product and brand refresh in the company's history" - and he added that momentum from the mid-quarter launch is continuing into the current quarter.

So, what’s the word on the Street? It’s a moderate buy, according to nine analysts. Four are shouting “strong buy,” four call it a “hold,” and one says it's a “moderate sell.” The mean target price of $4.75 suggests a robust 187% upside from current levels.

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Conclusion

These three stocks are clearly not for the faint of heart, as they are highly volatile and risky. But, they are also potentially high-reward plays that analysts haven't given up on just yet. 

So if you're on the hunt for cheap stocks that could double or more from their current levels, and you're ready to ride out the turbulence, these three stocks are worth considering at current levels. Just be prepared for volatility, competition, and potential misses on earnings as they invest in growth. 


On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.