For optimists, 2023 was a stellar year. The ageless Dow Jones Industrial Average climbed to a fresh all-time high, while the S&P 500 and Nasdaq Composite logged respective gains of 24% and 43% by the time the curtain closed.
But just because the major indexes have rallied in a big way from their 2022 bear market lows, it doesn’t mean other stocks have followed suit. There is no shortage of previous highfliers that are still 75% or more below their all-time high.
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For some of these former superstars, there’s still hope — at least based on the high-water prognostications of a couple of analysts on Wall Street. What follows are three turnaround stocks that, according to select Wall Street analysts, have the potential to rally by as much as 600% in the new year.
Novavax: Implied upside of 600%
The comeback story of the year, at least based on the price target of one Wall Street analyst, may be biotech stock Novavax (NVAX 3.00%). Despite tumbling more than 98% from its all-time high, H.C. Wainwright analyst Vernon Bernardino foresees shares of Novavax catapulting to $35. This would represent a 600% increase from the $5 shares closed at on Jan. 5.
Perhaps the biggest pendulum swing for Novavax is pending arbitration concerning orders for its COVID-19 vaccine with Gavi, a nongovernmental global vaccine organization. Gavi is seeking $700 million following the cancellation of a contract with Novavax for 350 million doses of its COVID-19 vaccine.
If Novavax owes nothing, its financial foundation would be greatly improved. Meanwhile, if it has to pay $700 million to Gavi, its ability to continue as a solvent company may come into question.
Cost-cutting is another big catalyst in 2024 for Novavax. The company practically halved its operating expenses through the first nine months of 2023 — a $950 million reduction when compared to the comparable period in 2022 — and has plans to slash another $300 million in full-year costs in the new year. If Novavax can meet these aggressive cost-cutting goals, it should meaningfully reduce its rate of cash burn.
The other wild card here is figuring out what happens with COVID-19 vaccine demand. Novavax used traditional methods to develop a protein-based vaccine, which is markedly different than the messenger-RNA vaccines developed by Moderna and Pfizer/BioNTech. If Novavax were to see stronger demand for its COVID-19 vaccine, or gather momentum as it kicks off late-stage studies for a combination vaccine (influenza and COVID-19), it’s possible shares could enjoy significant upside in the new year.
While I’m not nearly as bullish on Novavax as Bernardino, a triple-digit gain could be in the cards in 2024 if things fall Novavax’s way.
JD.com: Implied upside of 151%
Another big-time turnaround candidate for 2024, based on the forecast of one Wall Street analyst, is Chinese e-commerce company JD.com (JD -2.70%). In mid-October, analyst Fawne Jiang of Benchmark lowered her firm’s price target on JD to $67 from $73. But even at this reduced mark, Jiang anticipates up to 151% upside in shares of JD.com.
The biggest headwind for China’s No. 2 e-commerce company at the moment is that China is struggling to rebound from more than three years of pandemic-related lockdowns. Despite regulators abandoning the controversial “zero-COVID” mitigation strategy in December 2022, economic growth has been tepid.
The flip side to this story is that e-commerce has a lengthy growth runway in China. The No. 2 country by gross domestic product has a burgeoning middle class that can drive significant e-commerce growth in the years to come.
What really separates JD.com in China is its operating model. Whereas the largest e-commerce player, Alibaba, primarily leans on third-party sales via its online marketplace to generate revenue, JD is more of a true direct-to-consumer (DTC) provider. This is to say that JD handles inventory and the logistics associated with getting products to consumers. The DTC approach gives JD more control over its margins than its peers.
Something else worth noting about JD.com is that it’s in the process of spinning out its property and industrial segments, with the expectation that they’ll each be listed on the Hong Kong stock exchange. It’s not uncommon for spinoffs to unlock shareholder value by allowing investors to more easily dissect how companies grow and generate a profit.
The valuation certainly supports upside, too. JD is currently trading at roughly 8 times forward-year earnings. Even accounting for the added regulatory risks of investing in China stocks, this is historically cheap. While $67 by the end of 2024 might be a tall task, “up” does seem like the appropriate direction for JD’s stock.
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Petco Health and Wellness: Implied upside of 170%
The third turnaround stock with monumental upside in 2024, based on the call of one Wall Street analyst, is pet-focused products and services company Petco Health and Wellness (WOOF -2.02%). Analyst Oliver Wintermantel of Evercore ISI believes Petco stock can fetch $8 per share, which represents a potential gain of 170%, relative to where shares ended the previous week.
The single biggest factor working in favor of Wintermantel’s call is the willingness of owners to open their wallets for their furry, feathered, scaled, and gilled “family members.” Based on data from the American Pet Products Association (APPA), there hasn’t been a sequential yearly decline in U.S. pet industry expenditures for more than a quarter of a century. That’s great news for businesses that cater to the seemingly ever-expanded pet industry.
Unfortunately, Petco Health and Wellness hasn’t been able to capitalize on this steady surge in spending (note: APPA’s expenditures include vet care and products sales, as well as other categories, in addition to pet food and treats). In particular, CEO Ron Coughlin has noted a recent tendency for consumers to gravitate to value-based items. Though Petco is adjusting its products to match this value focus, as well as continuing to reduce its operating expenses, the company’s guidance has repeatedly missed the mark.
Rapidly rising interest rates are also taking their toll on Petco. Even though the company is making incremental progress reducing its outstanding debt, its interest expenses have notably risen from the previous year.
The key for Petco’s turnaround in 2024 likely hinges on the success of its higher-margin subscription services and DTC sales. Petco ended its fiscal third quarter with 672,000 Vital Care Premier members, which compares to a little over 400,000 at this time last year. Vital Care members are likelier to spend more than non-members and stay loyal to the Petco brand.
Meanwhile, beefing up its digital sales is an easy way for Petco to boost margins without meaningfully increasing its operating expenses.
Though Petco stock could conceivably bottom in 2024, an $8 price target might be asking a bit much with so many challenges to work through.
