Wall Street analysts often exhibit a herd mentality when it comes to upgrading and downgrading stocks. They often become too bullish when stocks are near a peak, and too bearish when they're near a trough. Today, our Motley Fool contributors will examine three stocks that Wall Street seems too bearish on: SINA (SINA), Skechers (SKX -0.17%), and BlackBerry (BB 3.08%).
This aging Chinese tech stock still has room to run
Leo Sun (SINA): Many Chinese tech stocks were crushed over the past year by decelerating growth forecasts and escalating trade tensions between the U.S. and China. However, that sell-off also reduced the valuations of some solid growth stocks to value-stock levels.
That's what happened to SINA, the media portal operator and largest stakeholder in social media platform Weibo (WB -1.31%). SINA generates most of its revenue from Weibo, which grew its revenue by 68% annually to $427 million last quarter. Revenue from its Portal business rose 8% to $115 million.
SINA's total revenue rose 50% annually for the quarter, and its non-GAAP net income climbed 26%. For the full year, analysts expect SINA's revenue to rise 41%, but for its earnings to only grow 10% due to tougher competition in the advertising market (particularly among small- to medium-sized enterprises).
But next year, SINA's revenue and earnings are expected to rise 30% and 53%, respectively, as those headwinds fade. Upcoming catalysts include the continued growth of Weibo (which has 431 million monthly active users), the expansion of its fintech business, and the introduction of new value-added services for its portals. A new partnership with JD.com could also improve the quality of its targeted ads.
At $70, SINA's stock trades at just 15 times forward earnings, which makes it very cheap relative to the company's growth potential. The bears often dismiss SINA as an also-ran in Chinese tech, but I think it could rebound sharply in the near future.
Wall Street gets impatient with Skechers
Nicholas Rossolillo (Skechers): After a second-quarter 2018 report that missed expectations and third-quarter guidance that was softer than anticipated, Wall Street analysts have been lining up to pan Skechers stock. The latest was from researchers at Cowen, citing slowing growth and a buildup in shoe inventory. After a big 2017 rally, the stock is down 30% in 2018, almost erasing all the gains from the year prior.
The problem isn't sales. The company's lineup is more popular than ever, in the U.S. and overseas. International wholesale increased 24.9%, and company-owned global retail stores increased 12.8%, offset by a 7% and 6.1% decrease in domestic wholesale and international distributor business, respectively. In total, revenue increased 10.6% in the second quarter and 13.6% in 2018 so far.
The rub, though, has been the bottom line. Expenses have been increasing faster than revenue growth, leading to deteriorating earnings per share -- $0.29 in the second quarter, compared with $0.38 a year ago. The blame can be laid on the international side as Skechers increases its spending on new stores, distribution centers, and advertising in countries like China.
Management said that sales should rise another 9% to 11% in the third quarter, but that expenses will likely stay elevated and keep a lid on profits. Thus, investors shouldn't be surprised to see more wild swings in pricing. However, with a forward P/E of just 13.2 and price to free cash flow of 22.5 (which includes all the aggressive spending on international expansion), it's too soon to give up on this beaten-down shoe stock.
From smartphones to smart cars
Jamal Carnette, CFA (BlackBerry): At first glance, it's easy to understand why Wall Street has mostly moved on from BlackBerry. Nearly a decade ago, the Canadian-based hardware manufacturer was among the top brands in the nascent smartphone market. Apple and Alphabet would soon disrupt BlackBerry (which was then called Research in Motion); shares would crater 92% over the last 10 years.
However, BlackBerry is no longer a smartphone story, but rather a play in the smart/connected car market. The company's QNX operating system is quickly becoming an important component in this market, which will only increase in both presence and size as autonomous vehicles take off. Unlike Alphabet's and Apple's rumored attempts in this market, BlackBerry's QNX OS is already in 120 million vehicles and has existing business relationships with major manufacturers.
While it's folly to say Blackberry doesn't face risks, retail investors and Wall Street continue to associate BlackBerry with its smartphone failures; that creates opportunities for those expecting big things from self-driving cars.