Did you pack your rod, bait, and tackle? We're going to go bottom-fishing today, and it's important to be prepared. There are a lot of stocks trading near their lows these days, and you're not going to like a lot of what you might catch. Nearly 3,700 stocks are trading within 10% of their 52-week lows on the U.S.-listed exchanges, and many of them aren't going to bounce back anytime soon.
Roku (ROKU 0.15%), CarMax (KMX 0.83%), and Trex (TREX -1.08%) are three names on that long list that I think have a decent chance of moving higher. It doesn't take a lot of money to buy into stocks these days, so let's see why I think that these are names to consider for the next $5,000 you have to invest in turnaround situations.
Image source: Getty Images.
1. Roku
The streaming-TV pioneer closed less than 6% from its 52-week low on Wednesday. Perhaps more shockingly, it is down more than 80% from its high.
Families aren't tossing away their Roku sticks. There were a record 63.1 million active accounts on the platform at the end of June. Engagement isn't wavering. The 20.7 billion hours streamed through Roku is a 19% improvement over the past year. The active accounts have risen 14%, so the average home is streaming more, not less, on the platform.
It's also rocking on the monetization front, as average revenue per user is up 21% over the past year. This isn't an out-of-pocket cost for its widening audience. Roku is a free operating system, supported by connected-TV advertising. In short, marketers are spending more to reach Roku's lucrative but elusive audience.
The reality check here is that the near-term outlook isn't as kind as the past year. Roku's latest guidance is eyeing a mere 3% year-over-year increase in revenue for the current quarter that ends next week, confirming the overall weakness we're seeing in the advertising market as the economy starts to wobble this summer. Margins that have been under pressure over the last year also can prove to be even more challenging.
However, betting against Roku on near-term turbulence when the platform itself is growing and proving its sustainable stickiness doesn't seem fair. Roku is still a bellwether among streaming video stocks, and we'll be spending a lot of time in our living rooms binge-viewing the nights away if the recession does get worse.
2. CarMax
Another stock stuck in reverse is CarMax. The top dog in the used-car retailing game hit a new low on Tuesday. We've seen auto sales suffer in recent months. Rising inflationary pressures and surging interest rates are keeping us away from big-ticket purchases. Gas prices have come down in recent weeks, but they're still well above where they were a year ago, so we're not really thinking about springing for a new ride.
The good news here is that CarMax revenue rose 21% in its latest quarter. Unfortunately, it's not as if demand is growing that fast. Its core retailing business experienced an 11% year-over-year decline in car volume. It was flat on the wholesale front. Revenue rose because average retail prices rose 14%. The bottom line was even worse, declining sharply as margins came under pressure.
CarMax reports next week, and Wall Street is braced for a fender bender. Analysts see revenue slowing to 4% growth, with earnings per share sliding by 17%. CarMax still makes the cut because you don't want to bet against the used car market. Folks still need to replace aging vehicles, and CarMax gives customers a cheaper way to get behind the wheel of a pre-owned car.
3. Trex
Let's head home -- more specifically, your backyard -- for the third and final fish to catch at the bottom of the sea. Trex is the leading maker of composite decking materials. It looks like wood, but it lasts for years without having to go through the laborious maintenance process for old-school patio decks.
Eco-friendly composite decking has been gaining market share at the expense of wood, and Trex has been the major beneficiary. Net sales and earnings per share climbed 24% and 49%, respectively, in its most recent quarter.
The knock on Trex here is that the real estate market is coming under pressure. The spike in mortgage rates is eating into home affordability as well as the ability to finance or refinance home improvement projects.
The silver linings here are that Trex has a clean balance sheet, it's profitable, and it has also been a perpetual buyer of its own stock. The last point might not seem so encouraging with the stock just 4% above its 52-week low, but it does ultimately increase earnings on a per-share basis. Trex projects might get pushed out at this point, but they will ultimately happen.
