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The 3 Biggest Comeback Stocks of 2020 (So Far)

By Demitri Kalogeropoulos – Jul 7, 2020 at 7:20AM

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Everybody loves an underdog.

The first half of 2020 contained some of the biggest market moves investors have seen in years. The S&P 500 was down 30% in mid-March and then soared over the next several weeks to almost break back into positive territory.

Many stocks saw even more volatility as Wall Street abandoned them before racing back. Below, we'll look at a few of the most dramatic of these comeback stories, from Wayfair (W -3.67%), Winnebago (WGO -4.86%), and iRobot (IRBT -0.34%).

A man and a woman holding open fans of hundred-dollar bills over their faces.

Image source: Getty Images.

1. Wayfair

Wayfair shares hit a 2020 low of $23 in March but have surged almost $200 per share during the subsequent rebound. Investors had some good reasons to worry about the online home-furnishings retailer early in the year. In February the chain announced slowing growth and ballooning net losses.

Its high expense infrastructure and slim inventory profile pushed down profits, while the prices of Chinese imports soared. But investors' steady pessimism turned into a stampede when indexes dove in March. It seemed that no one wanted to be caught holding an unproven e-commerce business during a market swoon.

Wayfair didn't stay down long. Shares started climbing as soon as it became clear that the market disruption wouldn't cascade into a financial panic. The company added to the optimism by confirming that its business saw a huge uptick as people prioritized spending on home furnishings in April and May. But the best news for investors is that Wayfair is on track to finally achieve profitability in the second quarter, thanks mainly to aggressive cost cuts. Look for that report in late July or early August.

2. Winnebago

The recreational-vehicle (RV) industry carries high fixed costs and is set squarely in the cyclical consumer-discretionary niche. Those two factors help explain why investors ran away from this business in early March as the retailing world shut down and a new recession officially began. Winnebago, the industry leader, had to quickly move to crisis mode when its network of dealerships closed and dealers stopped requesting new inventory. Management closed its RV production lines and began accumulating cash in preparation for a difficult financial period ahead.

Winnebago's third-quarter earnings report did show pressure from the temporary lot closures, but there was more good news than bad in the announcement. CEO Michael Happe and his team kept operating losses to a modest 2% of sales while gaining market share. And backlog soared thanks to rebounding demand in May. Executives have suggested that their business could see a sustained increase as people prioritize close-to-home travel and outdoor entertainment activities following the COVID-19 threat. But that optimistic scenario still relies on a quick return to growth for the broader U.S. economy.

3. iRobot

iRobot stock returns have swung from an over 30% loss in March to a near 70% gain in early July. The surge reflects a dramatic shift in investor sentiment that's been powered by improving operating trends.

^SPX Chart

^SPX data by YCharts

The robotic cleaning-device giant set expectations low for 2020 by warning that tariff price wars would harm profitability and pressure sales growth. But investors were more shaken by management's late April earnings report that showed strain on demand and on its supply chain from the pandemic.

iRobot fixed those bottlenecks just in time to benefit from the subsequent surge in spending on home-cleaning supplies. In fact, that demand surge now has executives targeting second-quarter sales of about $265 million compared to prior warnings of below $193 million.

Like the other comeback stocks above, iRobot's continued rebound will depend on unpredictable variables like strong consumer spending in the 2020 holiday season. Management is also standing by their forecast that overall sales will decline this year. But the market share leader could see an impressive earnings expansion if demand does rebound. That profit spike would be supported by a lower cost burden, which should serve all of these companies in any growth scenario going forward.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends iRobot and Wayfair. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Wayfair Inc. Stock Quote
Wayfair Inc.
$37.76 (-3.67%) $-1.44
Winnebago Industries, Inc. Stock Quote
Winnebago Industries, Inc.
$51.52 (-4.86%) $-2.63
iRobot Stock Quote
$57.81 (-0.34%) $0.20

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

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