After a difficult 2022, the market has recovered this year, with the S&P 500 up 13% so far. Most growth stocks have outperformed or are on par with the market, attracting investors' attention. There are, however, a few that have underperformed but have a lot of potential buried in them.
Bargain-priced stocks can sometimes be a great place for savvy investors to explore for opportunities. Let's take a look at three top stocks that have fallen short of the market this year. Is it time to buy them?
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1. Axsome Therapeutics
Biotech company Axsome Therapeutics (AXSM 0.27%) had a record year in 2022, with its stock increasing 104%. However, 2023 has been more challenging with its stock down 8%, following a $225 million public stock offering in June that diluted the value of existing shares. The company plans to use the proceeds in its pipeline development.
Its portfolio already includes two successful products. Sunosi is used to treat narcolepsy-related excessive daytime drowsiness. Jazz Pharmaceuticals sold it to Axsome in May 2022. Auvelity, its creation, treats major depressive disorder (MDD). Auvelity's sales for the quarter came in at $27.6 million. Since the pandemic began, the number of cases of MDD has increased substantially, making Auvelity an immensely popular drug.
Auvelity's sales may increase further once it is accessible in international markets. Sunosi has already made $0.6 million in international sales and brings in revenue for the company through licensing and royalties. Axsome's revenue has increased significantly as a result of its two commercialized products. Total revenue in Q2 totaled $46.7 million, compared to $8.8 million in Q2 2022.
Not only is the present promising for Axsome, but so is the future. The majority of its candidates are in phase 2 or later trials, indicating that they are effective. If approved, Axsome may soon have more successful products on the market.
Overall, the business is not yet profitable. However, two approved treatments and many exciting new drug candidates in late-stage trials may help it get there soon. Meanwhile, Axsome had $437 million in cash and cash equivalents at the end of the second quarter. This cash balance, according to management, will be sufficient to pay for upcoming product developments and assist the company in becoming cash-flow positive as soon as possible.
Axsome's robust drug pipeline could drive it to a larger and more diverse business in the coming years -- all of which should be a boon for investors.
2. Hormel Foods
Inflationary pressures may have harmed Hormel Foods' (HRL 0.14%) short-term performance. However, a track record of success suggests that these headwinds will not hinder the food producer's long-term growth. Its brands -- including Spam, Planters, Wholly, Jennie-O, and Dinty Moore -- have a worldwide following.
Hormel has paid and increased its dividend every year for the past 57 years. This demonstrates the company's resilience in the face of adversity, as well as its commitment to increasing earnings and returning capital to shareholders. It is a Dividend King, which are S&P 500 companies that have increased dividends for at least 50 consecutive years, proving the reliability of their operations.
Currently, the shares sport a dividend yield a 2.8%, which is higher than the S&P 500's average yield of 1.8%.
In the second quarter, Hormel's net sales fell 3.8% year over year to $2.9 billion. Net income fell to $217 million from $261 million in the previous quarter. Hormel typically offsets protein price increases by adjusting input costs, which include packaging, processing, and other expenses.
Hormel has been able to maintain its profit margins over the last decade thanks to its pricing power strategy. Despite temporary hurdles, it continues to generate earnings and raise dividends. Investors can think of it as a growth stock as well as an income stock.
3. Tilray
Tilray Brands (TLRY 1.71%) is currently the only Canadian cannabis stock I believe is worth an investment. Tight competition, stricter regulations, black market issues, and an oversupply plague the Canadian cannabis market. Most marijuana growers are struggling to increase revenue and turn a profit.
Tilray's net revenue rose 20% year over year to $184 million, and net cannabis revenue grew 21% in its most recent fiscal fourth quarter (ended May 31). Tilray's alcoholic beverage net revenue increased 43% year over year to $32.4 million in its fiscal Q4.
The company's acquisitions of SweetWater Brewing, Breckenridge Distillery, and Montauk Brewing in the U.S. are paying off. It also reported a 93% increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) to $22 million in the quarter, marking the company's 17th consecutive quarter of positive adjusted EBITDA.
Tilray is not yet profitable, but it is working to become so by diversifying beyond the cannabis industry. The company also does not rely solely on U.S. federal legalization alone and has established roots in the European market.
Before its merger with Aphria, the company had a significant presence in Portugal and Germany. Its reach now includes Italy, Poland, and the Czech Republic. The European medical cannabis market is expected to grow at a compound annual rate of 61% by 2028, reaching a value of $14 billion. The company is strengthening itself in preparation for entering the U.S. cannabis market (if and when legalization occurs).
Tilray's solid foundation, global reach, strong leadership, and wise growth strategies could propel it to the top of the cannabis industry in the long run.
