2 Beaten-Down Growth Stocks to Buy Without Hesitation in the 2024 Bull Market
The stock market has had a roaring first half of 2024, but not all companies have seen shares respond in the same way. As always, it's important to look beyond share prices and see how the business of any stock you want to invest in is holding up.
Sometimes, a beaten-down stock is a fantastic opportunity to become part owner of a business on the dip. Here are two such companies to keep in mind if you have cash on hand to invest that you don't need for bills or other near-term financial obligations, provided you have a buy-and-hold period of at least three to five years.
Let's take a closer look.
1. Pfizer
Pfizer (NYSE: PFE) is trading down by roughly 30% over the past year. The primary culprit here has been a steep deceleration in growth, sales, and profits following the heightened run up it experienced with the success of its COVID-19 vaccine and oral antiviral drug. All businesses go through cycles, and this is no less true of companies in the pharmaceutical industry. Even a healthcare giant like Pfizer is not impervious to the changing tides. That said, a COVID-19 sales cliff was inevitable.
Pfizer has ensured that the billions in revenue, profits, and cash that its COVID-19 products brought in were put to excellent use. The company executed a flurry of acquisitive maneuvers.
One notable mention was cancer biotech company Seagen, which specializes in developing antibody-drug conjugates -- special proteins made in a lab that seek to find and destroy cancer. The Seagen acquisition, which cost the company $43 billion, doubled Pfizer's drug pipeline and added nine cancer drugs that are already blockbusters or on the way to achieving that status.
Its $6.7 billion acquisition of Arena Pharmaceuticals brought experimental anti-inflammation drug Etrasimod (for the treatment of ulcerative colitis and multiple sclerosis) into the fold, along with other novel candidates across gastroenterology, dermatology, and cardiology. Another acquisition of note was Biohaven Pharmaceuticals, a move that cost the company $11.6 billion and brought migraine medicine Nurtec into its portfolio.
Pfizer also used its COVID-19 funds to fuel aggressive research and development efforts. In 2023, the company garnered more drug approvals from the U.S. Food and Drug Administration than any other pharmaceutical company -- seven in total. It's on the tail end of an 18-month period in which it is planned to launch 19 new products or indications. It also expects to achieve an additional $25 billion in annual revenue by 2030 thanks to its aggressive R&D efforts and acquisitions.
This would help offset the expected $18 billion or so revenue loss between 2025 and 2030 that management previously targeted due to the loss of patent exclusivity on some key products. Pfizer is also planning to have eight oncology blockbuster products in its portfolio by 2030. While oncology has remained a key area of focus for Pfizer through the years, its acquisition of Seagen signals a new and improved footprint within this space that could pay off significantly for the business in the years ahead.
In the first quarter of 2024, Pfizer reported profits of $3.1 billion on revenue of about $15 billion. That revenue figure was down 19% year over year, but if you leave out its COVID-19 products, revenue actually rose 11% from one year ago. Management also expects that its ongoing cost-cutting efforts will save the business $4 billion this year.
On another positive note, the decline in stock price has significantly improved Pfizer's dividend yield. That yield is approximately 6% at the time of this writing, with a quarterly dividend of $0.42 per share. Pfizer's dividend payout has also risen by about 17% over the trailing-five-year period.
While it will take time for the fruits of Pfizer's recent product launches, cost-cutting efforts, and acquisitions to take root in its balance sheet, this is a company that looks to be on the right path to a brighter future after a bumpy period of transition.
Pfizer has 175 years in business under its belt and a promising road to growth ahead, so investors wanting to become part owner in an established healthcare business and enjoy some dividend income to boot might want to take a second look.
2. Ulta Beauty
Ulta Beauty (NASDAQ: ULTA) is trading down by about 15% from one year ago and 22% from the start of 2024. This is despite its continued resilience in a challenging spending environment.
Ulta Beauty is the largest specialty beauty retailer in the country. It's known for its brick-and-mortar stores, where shoppers can access thousands of beauty products across a variety of categories. These stores include Ulta's own stand-alone locations as well as those found in its long-standing partner Target's stores.
The company also has a thriving online presence where shoppers can access its products with ease. Ulta Beauty has 1,395 stores open, with a focus on high-traffic consumer locations. Its stores don't just feature aisles of products; most stores also offer beauty services, including a hair salon. It also has over 500 of its shops installed in various Target locations.
The secret sauce to Ulta's success goes beyond its diverse in-store and online presence. Its loyalty program keeps customers coming back for more, and those loyal members account for the lion's share of its total sales. The Ulta Beauty Rewards program allows members to earn points for each dollar they spend on products and beauty services.
Members can also earn points using certain credit cards or through purchases at Target Ulta Beauty locations. In 2023, more than 95% of Ulta Beauty's total sales came from members.
The loyalty of Ulta Beauty's shoppers, varying price points across key beauty categories, and the popularity of its in-store and online services have driven exceptional profits, revenue, and cash flows. Over the trailing-five-year period, Ulta Beauty has grown its annual revenue by approximately 52%. Its annual net income and operating cash flow have grown by respective amounts of 83% and 34% in that same time frame.
In the first quarter of 2024, Ulta Beauty's sales totaled $2.7 billion, a 3.5% increase from the same period last year. Its gross profit was $1.07 billion, or approximately 40% of sales. Net income for the three-month period was down from one year ago, but still totaled $313 million.
At the end of the quarter, Ulta Beauty had around $525 million of cash and cash equivalents on its balance sheet and zero long-term debt. That's a notable feat for a capital-intensive business. The company trades at a price-to-sales ratio of about 1.6 at the time of this writing. It may be a good time for forward-thinking investors to consider a position in this top cosmetic stock.
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Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer, Target, and Ulta Beauty. The Motley Fool has a disclosure policy.
