3 Out-of-Favor Stocks That Fall Short
Hitting a new 52-week low can be a pivotal moment for any stock. These floors often mark either the beginning of a turnaround story or confirmation that a company faces serious headwinds.
While market timing can be an extremely profitable strategy, it has burned many investors and requires rigorous analysis - something we specialize in at StockStory. That said, here are three stocks where the outlook is warranted and some alternatives with better fundamentals.
PepsiCo (PEP)
One-Month Return: -4.3%
With a history that goes back more than a century, PepsiCo (NASDAQ:PEP) is a household name in food and beverages today and best known for its flagship soda.
Why Does PEP Give Us Pause?
- Shrinking unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
- Estimated sales growth of 2.8% for the next 12 months is soft and implies weaker demand
- Earnings growth over the last three years fell short of the peer group average as its EPS only increased by 3.8% annually
PepsiCo is trading at $129.72 per share, or 15x forward P/E. If you’re considering PEP for your portfolio, see our FREE research report to learn more.
Lennar (LEN)
One-Month Return: -8.6%
One of the largest homebuilders in America, Lennar (NYSE:LEN) is known for constructing affordable, move-up, and retirement homes across a range of markets and communities.
Why Do We Think LEN Will Underperform?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 8.6% declines over the past two years
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 13.2% annually while its revenue grew
- Eroding returns on capital suggest its historical profit centers are aging
Lennar’s stock price of $73.16 implies a valuation ratio of 15.8x forward P/E. Check out our free in-depth research report to learn more about why LEN doesn’t pass our bar.
PennyMac Financial Services (PFSI)
One-Month Return: -15.1%
Founded during the 2008 financial crisis to help address the mortgage market meltdown, PennyMac Financial Services (NYSE:PFSI) is a specialty financial services company that originates, services, and manages investments related to residential mortgage loans in the United States.
Why Are We Bearish on PFSI?
- Loans are facing significant end-market challenges during this cycle as net interest income has declined by 27.5% annually over the last five years
- Forecasted net interest income decline of 22.7% for the upcoming 12 months implies demand will fall even further
- Sales were less profitable over the last five years as its earnings per share fell by 18% annually, worse than its revenue declines
At $57.79 per share, PennyMac Financial Services trades at 0.7x forward P/B. If you’re considering PFSI for your portfolio, see our FREE research report to learn more.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.