What do package delivery leader FedEx (FDX 0.19%), solar titan Enphase Energy (ENPH 1.15%), and media magnate Walt Disney (DIS -0.01%), all have in common? As companies, not much. But as stocks, more than you may realize.
All three S&P 500 components beat the market in 2020. This year, they are in the bottom 20% of S&P 500 performers. Languishing near the bottom of the barrel, you may think that there's something wrong with all three stocks. But in reality, their collective 2021 underperformance embodies the importance of context.
Here's why FedEx, Enphase, and Disney are three down-in-the-dumps stocks worth buying now.
The value play
FedEx and fellow package delivery titan United Parcel Service (UPS -0.17%) each reported record revenue and net income in their most recent annual reports. Both companies were able to capitalize on the surge in residential deliveries as folks stayed away from in-person stores and shopped online instead. For UPS, it was an added jolt to what has been years of solid growth and dividend raises. But for FedEx, it marked a pivotal transition. The company had been prone to missing guidance and struggled to sustain FedEx Express's profitability. Lately, it has reversed the trend by posting quarter after quarter of rapidly improving sales and margins across the board.
Despite this newfound hot streak, FedEx stock has come under fire over the last few months, likely due to relatively weak fiscal-year 2022 guidance of 7% revenue growth and roughly 8% non-adjusted earnings growth.
FedEx may have trouble lapping last year's amazing numbers. But there are plenty of indicators that signal its business is well-positioned for years to come. For one, its strong performance has helped improve its financial health.
FedEx now sports a three-year-low debt-to-capital ratio and financial debt-to-equity ratio. These two profitability metrics indicate how reliant a company is on debt. FedEx has done a good job lowering its dependence on debt and generating strong operating cash flow -- improving its financial position in the process. FedEx has a price-to-earnings ratio of just 13.7 compared to rival UPS' 28.2 P/E ratio -- although there is an argument that UPS is the better all-around stock. Despite UPS' advantage, FedEx is simply too cheap to ignore and looks like a great value stock to buy now.
The growth play
Few companies embody 2020's scorching solar stock surge better than Enphase. Its share price increased by 570% last year, which was arguably too far, too fast given 2020's year-over-year revenue growth rate of 24% compared to 97% revenue growth between 2018 and 2019.
As such, it's not all that surprising that Enphase stock has cooled off. But for patient investors, further declines in the stock price could present a potential buying opportunity.
Enphase is a great example of the value in separating a company's stock price from the business itself. Enphase stock is currently trading at a price-to-sales ratio of 24. The company is only beginning to generate steady earnings, so it's no wonder its P/E ratio is a sky-high 138. Euphoria is to blame for Enphase's expensive valuation and subsequent underperformance this year, not the company itself.
Enphase's business deserves credit for not only growing during the height of the pandemic but also returning to ultra-high growth mode in 2021. In the first half of 2021, Enphase notched around $617 million in revenue. For context, that's 80% of the record $774 million it generated in all of 2020. What's more, Enphase generated as much revenue in the second quarter of 2021 as it did in all of 2019.
Aside from broader tailwinds driving the solar sector, Enphase has proven it can add new products and grow its business while sustaining strong gross margins. This characteristic should help drive profitability in the future. Enphase's board of directors approved a new stock buyback program for up to $500 million over the next three years, which is sizable for a company of its size. Investors should approach Enphase with caution, knowing full well it is, in many ways, priced for perfection. But for folks looking for an industry-leading growth stock, Enphase could be an excellent long-term option to buy on sale.
The blue-chip play
Unlike FedEx or Enphase, Disney had one of its worst years on record in its fiscal year 2020. It was the company's first annual loss in more than 40 years as movie theater and theme park earnings fell off a cliff. But there's a silver lining.
The timely release of Disney+ in November 2019 couldn't have been more perfect. Disney+ adoption crushed estimates. Investors viewed the hit to Disney's media, entertainment, and parks segments as temporary -- knowing full well that Disney could emerge from the pandemic as a stronger company with the added boost from Disney+. As such, Disney stock handily beat the market last year, all while the company reported terrible results.
Similar to Enphase, Disney's stock price may have gotten ahead of itself. Much of its business is still recovering from the pandemic. In fact, revenue and operating income for the nine months ended July 3, 2021 were actually lower than the first three quarters of fiscal year 2020. The company is experimenting with new ways to improve its park performance while slowly ramping up capacity, as well as releasing feature films through Disney+ Direct Access to try to supplement lost movie theater revenue. Despite the challenges, the company's incredibly strong brand power and global influence -- and the idea that the worst of the pandemic-induced headwinds are over -- make Disney a stock that's worth the risk.
Tying it all together
This year's stock performance of FedEx, Enphase, and Disney illustrates the importance of context. Performance is relative, both to the upside and the downside. Wall Street overly punished terrific companies in the spring of 2020, including FedEx and Disney, then tried to overcompensate by rapidly driving their share prices higher.
Instead of focusing on if a stock is beating the market in a particular year, it may be better to ask if a business will be worth more five or 10 years from now than it is today. In the case of FedEx, Enphase, and Disney, all three companies have solid fundamentals and a bright future. As a basket, they combine value, hyper-growth, and blue-chip fundamentals -- a blend of characteristics that many investors are sure to love.