Buying stocks that have fallen heavily in value can be a risky proposition. You're never really sure where the bottom is and you may stand to lose money in the near term. It's definitely not a great option for investors who might be tempted to buy or sell stocks based on short-term price movements.
If you don't fall into that category and can stomach some risk, three growth stocks to consider that could be big winners in 2022 are Cresco Labs (CRLBF -2.88%), Boston Beer (SAM 1.39%), and Pinterest (PINS -0.51%). They have all fallen sharply in the past six months but they all make for some promising contrarian buys right now.
1. Cresco Labs
In the latter part of 2021, shares of marijuana producer Cresco Labs plummeted 40%. However, the decline wasn't due to company-specific factors; the entire industry has been struggling -- during the same time frame, the AdvisorShares Pure US Cannabis ETF fell by 37%.
And pessimism is likely growing in the sector about the possibility of any serious reform after yet another failure for the SAFE Banking Act. Although it was included in the National Defense Authorization Act at the beginning of last month, it was eventually stripped out, marking the fifth time that SAFE Banking has passed the House only to end up making no further progress.
But that's an industry problem, and reform will likely come with time. Support for marijuana legalization has never been higher, with Gallup polls showing 68% of Americans are in favor of it. As for the company, one of the reasons I like Cresco Labs is that it's among the leaders in the industry. Generating more than $200 million in quarterly revenue and approaching a $1 billion annual run rate in sales, it doesn't trade at a steep multiple. Its price-to-sales ratio is just over two, while top multi-state operators Curaleaf Holdings and Trulieve Cannabis trade at five and four times their revenue, respectively.
Cresco has also generated positive cash flow from its operations in four of the past five quarters. And with a cash and cash equivalents balance of $253 million, it's in great financial shape and could afford to take on more acquisitions as valuations continue to decline in the cannabis industry. In the past year, the company has acquired multiple cannabis companies based in Maryland, Massachusetts, and Pennsylvania.
It wouldn't be surprising to see Cresco continue to build on its position in the market with more acquisitions in 2022, which will likely lead to stronger numbers and potentially a much healthier share price.
2. Boston Beer
Beverage company Boston Beer had a rough year in 2021, as its sales have been erratic. Here's a quick breakdown of the past four earnings reports and their respective year-over-year growth rates:
|Quarter||Period Ending||Net Revenue||Growth (YOY)|
|Q4 2020||Dec. 26, 2020||$460.9 million||53%|
|Q1 2021||March 27, 2021||$545.1 million||65%|
|Q2 2021||June 26, 2021||$602.8 million||33%|
|Q3 2021||Sept. 25, 2021||$561.6 million||14%|
Although the company doesn't break out product revenue on its earnings report, hard seltzer sales have been driving much of the growth for the business. And on Boston Beer's earnings call back in July 2021, management admitted that it overestimated the growth for that category.
However, it remains bullish on hard seltzer over the long term. Today, it says hard seltzers account for 11% of beer sales (versus 9% a year ago) and over the next five years, the company believes the percentage could rise to as high as 20%. And with its Truly brand being among the top sellers in that category, there could be stronger sales numbers in the future for Boston Beer.
Many brokerages have lowered their price targets for Boston Beer and expectations are definitely low for the company. The stock's price has been cut in half over the past six months and things don't look too encouraging right now. But it's that bearishness that makes this an attractive contrarian stock to buy in 2022. Amid reopenings and more social gatherings, demand for its products could be strong this year. And with expectations low, it increases the odds that Boston Beer delivers a positive earnings surprise.
Shares of social media company Pinterest have fared the worst of the stocks listed here in the latter half of 2021, crashing 53% in value. Although the company beat expectations in its third-quarter earnings report (period ending Sept. 30, 2021) with revenue of $633 million coming in ahead of analyst estimates of $630.9 million, the concern is the outlook for the future. While sales were up 43% in Q3, the company only estimates a growth rate "in the high teens" for the next quarter, compared to the nearly 24% growth analysts were projecting.
In addition, Pinterest's monthly active users in Q3 were 444 million and only grew slightly from 442 million a year earlier. However, what's promising is that the company is generating much more revenue per user. At $1.41, that's 37% higher than a year ago when its average revenue per user was just $1.03. And so it's no surprise that its financials have become stronger as a result of that. In Q3, Pinterest reported a profit of $94 million, a complete reversal of the $94 million loss it incurred in the prior-year period.
Investors should also be bullish about recent rumors that fintech company PayPal was in talks to buy Pinterest for around $70 per share -- nearly double its price today. Although the deal didn't go through, it's an encouraging sign that companies see the value in Pinterest. And many brokerages agree there is plenty of upside for the stock, with several setting price targets of at least $50.
If Pinterest can continue posting a profit and building on its recent results, it won't be long before the stock turns things around. Buying now could be a great move for growth-oriented investors.