Insufficient Performance Witnessed from This Triad in 2024. However, These 3 Undervalued Shares Remain My Top Confident Opinions for 2025.
Insufficient Performance Witnessed from This Triad in 2024. However, These 3 Undervalued Shares Remain My Top Confident Opinions for 2025.
As we approach the year's end (as of now), the S&P 500 has seen a remarkable 27% increase in 2024. If someone invested $10,000 and earned a 27% return annually, they'd have an impressive $100,000 in a decade. Undeniably, 2024 has been a stellar year for individuals aiming for "normal" stock market returns.
However, not all stocks have mirrored this impressive trend. Companies like shoe manufacturer Crocs (CROX 0.70%), sports retailer Academy Sports and Outdoors (ASO 0.57%), and display technology provider Universal Display (OLED 1.26%) have underperformed the S&P 500 in 2024. Surprisingly, two of these have even recorded losses for investors this year.
Despite their lackluster 2024, I predict a significant turnaround in 2025 for these three stocks. Let me explain why.
1. Crocs
Trading at a modest 8 times earnings, Crocs is a budget-friendly stock. However, whether it's undervalued or not depends on the sustainability of its profits and how management handles its cash. If Crocs' earnings plunge in the future or its capital is mismanaged, then it won't be a wise investment. But there's substantial reason for optimism.
Crocs owns the HeyDude shoe brand, yet the original Crocs brand still accounts for more than 80% of the business. This key brand is consistently growing, with an expected 8% increase in year-over-year revenue. Additionally, the profit margin for this brand is steady, resultantly delivering substantial operating income.
Regarding its financial management, Crocs took on significant debt when acquiring HeyDude. However, it has already repaid over $1 billion in the last two years. With its debt gradually decreasing, Crocs has started buying back shares at these low prices.
I believe that the strength of the Crocs brand alone could propel it to positive returns. The HeyDude brand may be struggling, with a projected 15% fall in revenue this year. Yet, if management can revitalize HeyDude, then that will only serve to further enhance this promising trend.
2. Academy Sports
Similar to Crocs, Academy Sports stock is also trading at about 8 times earnings. With just a bit of optimism, Crocs could perform well by merely maintaining its present growth rate. The same could be true for Academy Sports as well. Nevertheless, the long-term potential for Academy Sports is significantly more enticing.
Academy Sports sets itself apart from competitors by offering locally relevant merchandise rather than commoditized products. This strategy appears to be succeeding. In 2023, its stores generated an impressive $22 million in sales, outpacing its competitors. Moreover, its net profit margin has improved to over 7%, contrasting with its meager margins five years ago.
Academy Sports presently operates around 300 stores, but it aims to expand to more than 800 locations in the long term. In 2025, management plans to open 25 new stores, representing almost 8% growth. Although there are numerous intricate details involved, Academy Sports' profits should also grow next year due to these new store openings. Since the stock is already affordable, I expect these increased profits to drive up its share price in 2025.
Profitability is essential for investors in the long term, not only for Academy Sports but also for Crocs. Both companies are diligently paying down their debt and purchasing back their shares, as demonstrated in the two-year chart below. While it's challenging to predict the timing, this mix of debt reduction and share repurchases will likely contribute to a substantial boost sometime in the future.
3. Universal Display
Many people own electronic devices with an organic light-emitting diode (OLED) display. Although the technology isn't new, Universal Display has a substantial advantage in this market with over 6,000 patents. It's one breakthrough away from initiating a new lucrative cycle in this domain.
Technology hardware companies, particularly those producing mobile devices, are focused on extending battery life due to the increasing power of mobile devices. That's why they turn to OLED technology. Above all, it's more energy-efficient.
Universal Display generates a high margin of profit through licensing its technology and selling its materials. The company boasts a remarkable net-profit margin of 37%. Management dedicates a significant amount of cash to research and development to stay ahead of competitors. Currently, it's working on the next iteration of OLED tech, referred to as phosphorescent OLED, or PHOLED.
Universal Display requires three primary colors to make its displays functional: Red, green, and blue. It has already developed PHOLED red and green. However, PHOLED blue has proven to be an elusive challenge. Management hopes to commercialize it this year but has unfortunately been unable to accomplish this goal. Nevertheless, management claims it's "very close" to achieving commercialization.
According to Universal Display's leadership, employing PHOLED blue in their displays could potentially boost their energy efficiency by 25%, rendering them an appealing upgrade option for device manufacturers. I don't find it implausible to anticipate that the technology for blue will be accessible by 2025, subsequently propelling the company's expansion.
Despite Universal Display's stock trading at over 30 times earnings, I'm not suggesting it's a bargain. Nevertheless, I am convinced it's underpriced considering its long-term growth prospects, given the increasing adoption of their products over time.
Cheers to 2025
Crocs, Academy Sports, and Universal Display rank high on my list of most convincing investment ideas for 2025. I'm optimistic about all three performing well, and I believe the risk of loss is minimal in each case. My confidence stems from the robustness of these businesses and the belief that each stock is undervalued.
Shares can be underestimated and therefore undervalued for extended periods. Therefore, it's possible that the stocks of Crocs, Academy Sports, and Universal Display will underperform again next year, even if the businesses thrive. I'm okay with this. Investing is a long-term game. And I'm optimistic about these businesses for at least the next five years.
- In light of the positive predictions, investors might consider diversifying their portfolios by allocating some funds towards these undervalued stocks, such as Crocs, Academy Sports, and Universal Display, as they may yield significant returns in the future, given their strong financial performance and growth potential.
- With a focused strategy on managing finances and investing wisely, individuals can potentially enhance their savings and wealth by including underperforming stocks like Crocs, Academy Sports, and Universal Display that show promising prospects for the upcoming year and beyond, thereby maximizing their returns and safeguarding their investments against market volatility.