Most of the time, analysts as well as investors correctly see a company's true colors. Every now and then though, Wall Street is off the mark, underestimating stocks that are actually solid investments. If you can identify when these mistakes are being made, it translates into opportunity for you.
With that as the backdrop, here's a closer look at three growth stocks that Wall Street may not love right now, but arguably should. They might be at home in your portfolio.
1. Nike
It's been a tough past three years for Nike(NYSE: NKE), and by extension, for shareholders. The stock's down nearly 40% from its late-2021 high, and still within sight of July's multiyear low. Revenue growth has been slowing, and profit growth has been hit-and-miss.
This lingering weakness ultimately resulted in now-former CEO John Donahoe deciding to step down this month, to be replaced by former-and-now-returned Nike executive Elliott Hill. Shares jumped on hopes that Hill will be able to restore the old Nike magic that's been missing for a while now.
The thing is, that was starting to happen regardless of who's at the helm.
Oh, that's not evident in last quarter's numbers. Revenue for the three-month stretch was down 10% year over year, with operating profits falling to a similar degree. Analysts are calling for comparable results for the remainder of the fiscal year, ending in May 2025.
Much has happened over the course of the past couple of years, however, that sets the stage for more success in the foreseeable future.
One of these developments is the restoration of wholesaling partnerships that had been strained just a few years prior, when Nike prioritized expanding its own retailing -- including online -- presence. Indeed, former Nike executive Tom Peddie was brought back into the fold in June to specifically lead this effort. The footwear company has also reprioritized the innovation that previously excited consumers, and especially so-called sneaker-heads.
The catch? As Donahoe correctly explained in July, 2024 is a "transition year." In other words, while the reinvigoration efforts may be brilliant, they'll still take time to begin getting traction. Donahoe won't be in charge when his efforts start bearing fruit, but the seeds are planted.
Of course, it doesn't hurt that Nike is able to leverage the premier brand name in athletic apparel, athletic footwear in particular. If nothing else, the market seems to have lost sight of this competitive edge.
2. PDD Holdings
You may be more familiar with PDD Holdings(NASDAQ: PDD) than you realize. Although it's not a household name here, you have likely heard of its e-commerce platform, Temu.
OK, Temu has something of a (well-deserved) reputation for delivering goods that aren't quite what's described in its listings. Take the complaints with a grain of salt, however. While it is a problem, you're only hearing the horror stories. In most cases, the site's shoppers are satisfied. The site and its sellers have a vested long-term interest in keeping customers happy, after all.
More important to interested investors, PDD offers an important service within the world of e-commerce. That is, it directly connects Chinese manufacturers with consumers outside of China -- one of the online-shopping arena's largely untapped opportunities when Temu launched here back in 2022.
Now the company's replicating the business model elsewhere, and in other ways. For instance, PDD's been recruiting European vendors and marketing to Europe's consumers since early last year, and is now cultivating relationships with American manufacturers looking for a new means of selling domestically as well as abroad.
While it's been something of a wild ride, there's no denying the platform's getting traction. Last quarter's revenue improved 86% year over year, contributing to expectations of full-year top-line growth of 66%.
Sales growth will likely slow next year, the company explicitly warned in August, sending shares sharply lower as a result. There's nothing unusual or actually concerning about this slowdown, though. It's mostly a mathematical one, rooted in PDD's previous, incredible growth. The opportunity ahead is still enormous.
Indeed, market research outfit Precedence Research predicts the global e-commerce market is set to grow at an average annualized pace of 14.9% through 2034. PDD is positioned to capture at least its fair share of this growth.
3. Kraft Heinz
Last but not least, add Kraft Heinz (NASDAQ: KHC) to your list of stocks Wall Street is sleeping on, but probably shouldn't be. Shares are down more than 60% from their 2017 peak, and still trading roughly where they were in 2020.
Many investors have simply given up on this name. But that's a mistake.
Sure, in retrospect, the 2015 merger of then-separate food giants Kraft and Heinz hasn't panned out as hoped. The two companies simply didn't mesh well, nor did they achieve the synergies that prompted the pairing in the first place. It's arguable the union created more challenges than it solved, in fact. That's why the stock's seemingly stuck in a rut, and why so many investors have essentially left it for dead.
Better days, however, may be right around the corner.
A new corporate culture led by a new chief executive has much to do with this revival. Carlos Abrams-Rivera's only been at the helm for a little over a year, but there's already a clear shift for the better in how the company manages its business.
As an example, early this year Kraft Heinz explicitly differentiated its three core businesses as North American retail (grocers), restaurants, and emerging markets, and then explained how it's going to address each of these markets differently. It also plainly demonstrated a clear understanding that while some of its product lines should be treated like growth engines, others -- like cheese -- should be viewed as basic staples with market share that should first and foremost be defended.
Perhaps best of all, the company is meaningfully innovating again. Late last year, it unveiled a microwavable grilled cheese sandwich, and just last month, Kraft Heinz introduced butter with an A.1. steak sauce flavor
These aren't life-changing products, but collectively, they can certainly move the needle. More to the point, it's the sort of specific strategic thinking that's mostly been missing -- until now.
None of it's helped the stock yet, for the record. A lack of dividend growth for the past few years isn't helping any, either. It's slowly but surely helping the company, though, with the bottom line expected to continue its gradual improvement at least through 2026.
Even that modest forward progress puts a potential dividend increase on the table. You'd be stepping in while the forward-looking dividend yield stands at a solid 4.6%.
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*Stock Advisor returns as of October 7, 2024
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.
