Please ensure Javascript is enabled for purposes of website accessibility

Wall Street Has Given Up on These 3 Stocks, and That's a Huge Mistake

By Demitri Kalogeropoulos, Jeremy Bowman, and Neha Chamaria - Updated Feb 27, 2018 at 12:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Etsy is one of three stocks that may have gotten an unfair knock by investors lately.

Markets may be setting new highs these days, but not all stocks have participated in the recent rally. And while Wall Street usually has good reasons to push a stock lower, that pessimism can get out of hand at times.

Below, Motley Fool investors spotlight a few stocks they think have been unfairly beaten down lately. Read on to find out why Etsy (ETSY -7.71%), GameStop (GME -3.43%), and HCP (PEAK -1.75%) could be poised for a rebounding share price.

An unloved e-commerce play

Jeremy Bowman (Etsy): After trading north of $30 shortly after its 2015 debut, Etsy stock turned into a busted IPO, tumbling in its first months on the market as the crafty e-commerce company saw losses deepen amid slowing top-line growth. 

A jeweler at work.

Image source: Getty Images.

While the stock has gradually regained much of those losses over the past two years, Wall Street analysts remain skeptical, as only three out of 12 analysts rate the stock a buy, with one rating it a sell and eight as a hold. On Wall Street, "hold" is often a euphemism for "sell."

The skepticism toward Etsy may be understandable given the company's struggles and competition from the likes of Amazon, but Etsy has a unique property and brand on the internet, selling handmade goods by artisans, and with its marketplace model, Etsy is in a position to make easy profits on transactions on its website. It's also no slouch in e-commerce as it's the fourth-most visited e-commerce website in the U.S. The company has been taking steps toward profitability under new CEO Josh Silverman, who took over last May and has implemented layoffs after activist investors took stakes in the company and demanded action.

Sliverman's changes, which included jettisoning many of the cushy perks Etsy employees were used to, have delivered results as revenue growth has accelerated and adjusted earnings have turned positive. Etsy's fourth-quarter report (out February 27) will be key in determining the company's next steps, but Wall Street appears to be underestimating the company's turnaround and potential.

Leveling down

Demitri Kalogeropoulos (GameStop): Just about every company associated with the video-game industry, from developers like Activision Blizzard and Take-Two Interactive, to hardware producers like NVIDIA, have seen their stocks soar lately. But Wall Street has come to the opposite conclusion on GameStop. It is down a brutal 40% since early 2017.

Two children playing video games on the floor.

Image source: Getty Images.

Never mind that the retailer recently logged its fastest sales growth of the year as holiday-quarter results jumped 12%. The boost put GameStop right on track to expand revenue by 5% in fiscal 2017 to mark a nice rebound from the prior year's 11% slump. 

To be sure, the company is facing major profitability issues as its core video-game software segment shrinks. Its growing categories, meanwhile, including consumer electronics, generate weaker margins.

Yet this business is far from cash strapped. Earnings are on pace to dip to $3.25 per share this fiscal year, and that's down slightly from the prior year's $3.40 result. But those profits still easily enough to cover a dividend that right now yields over 9%. A yield that high signals that Wall Street sees very little value in this business. However, there's a good chance GameStop manages modest growth from here, even if its most profitable days are behind it. 

An aging population deserves your attention

Neha Chamaria (HCP): HCP shares are down nearly 25% in the past six months, and even a 6.6% dividend yield isn't attracting investor attention yet. I think that's a mistake, and investors are perhaps missing the big picture.

To be fair, a couple of factors have stolen attention away from the healthcare real estate investment trust (REIT), including the company's move to reduce exposure to a key client, which is hurting its top line and cash flows. What appears to have spooked investors even more is the 36% cut in HCP's dividend in 2016.

It wasn't a dividend cut in the true sense of the word -- HCP's profit and cash flow shrank after it spun off its skilled-nursing and assisted-living facilities into a stand-alone publicly traded entity, Quality Care Properties, which reflected in lower dividends.

HCP's divestments, though, are helping the company strengthen its balance sheet, and its dividends are likely to rise in coming years as the company is required to pay out 90% or more of its net income to shareholders in the form of dividends as a REIT. Meanwhile, HCP should be able to cash in on increasing demand for healthcare from an aging population, thanks to its strong portfolio of assets that cover essential aspects of healthcare, including senior living, life science, and medical office. At a price-to-cash-flow of only 12 times, I think it's time Wall Street starts paying attention to HCP.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Etsy, Inc. Stock Quote
Etsy, Inc.
$74.43 (-7.71%) $-6.22
HCP, Inc. Stock Quote
HCP, Inc.
$25.57 (-1.75%) $0.46
GameStop Corp. Stock Quote
GameStop Corp.
$125.24 (-3.43%) $-4.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.