Robinhood investors love betting on beaten-down stocks with the potential to bounce back. It's a risky strategy that can deliver outsized returns if things go as planned. Ford Motor (NYSE:F) and MGM Resorts (NYSE:MGM) are two popular stocks on the platform that have seen better days.
Let's find out why they could potentially skyrocket in the future.
With a market cap of $35 billion, Ford looks cheap considering its potential to grow profits by boosting its operating margins. The stock has gained around 90% so far in 2020 compared to an S&P 500 return of 17%, which shows the market is getting more optimistic about the automaker's long-term strategy.
Ford aims to turn around its automotive operations by improving quality, reducing costs, and restructuring underperforming businesses. This strategy includes rolling out new vehicles in the fourth quarter, such as the all-new F-150, Mustang Mach E, and Bronco SUV. Ford doesn't disclose model-level profit data. But these vehicles may enjoy better-than-average margins and help boost the company's bottom line.
According to Fox Business, analysts say Ford makes $10,000 in profit on every F-150 truck it sells. And some at Credit Suisse believe the Bronco could generate nearly $1 billion in profits if sales surpass 125,000. Management has delayed the spring launch of the new SUV until summer because of pandemic-related supplier problems. But the Bronco is likely to meet a warm welcome with consumers because it boasts at least 190,000 reservations as of the third quarter.
Ford's turnaround may already be taking shape. Third-quarter sales grew by 1.4% to $37.5 billion -- a dramatic improvement from the second quarter, when sales were down 15% against the prior-year period.
The company's net income soared from $423 million to $2.4 billion because of strong performance in the North American market and narrower losses in international markets. Ford enjoyed an improved product mix and higher net prices as it discontinued low margin sedan lines to focus on trucks and SUVs.
MGM Resorts was slammed by the coronavirus pandemic, which dramatically reduced visitor traffic to its casinos and resorts. While the stock has recovered most of its losses in 2020, shares are still down by 7% year to date -- creating an opportunity for risk-tolerant investors to bet on a comeback as MGM pivots to online gambling and sports betting.
MGM had a rough third quarter, with revenue falling 66% to $1.1 billion in the period. But that's a significant improvement compared to the second quarter, when revenue fell 91% against the prior year. MGM's regional casinos are driving the recovery as gamblers avoid major tourism hubs like Las Vegas and Macao in favor of locations closer to home. And the rollout of a workable COVID-19 vaccine could help normalize operations in 2021.
Over the long term, MGM is focused on sports betting and online gaming to drive future growth. Management expects the market to be worth $20.3 billion by 2025 and hopes to capture a 15% to 20% market share with its gaming platform, BetMGM. So far, the company seems to be executing its strategy well, with an average market share of 17% in states where it is active, according to data from Legalsportsreport.com.
Investing for the long term
Long-term investing is the key to sustainable returns in the stock market, and investors shouldn't get too discouraged by temporary near-term challenges. Ford Motor and MGM Resorts are recovering from the coronavirus pandemic and could skyrocket as they pivot to new long-term growth opportunities.