Wall Street is well-known for its focus on the short term -- when the market values a stock, it's often only looking only as far ahead as the next quarter. Such myopia means that companies facing temporary headwinds can be hit with sharp share price declines even though they still have lots of potential. But that pattern can provide some great opportunities to savvy long-term investors.
Case in point -- the three companies below. The market has recently sold their shares off, but they're worth taking a second look at. Otherwise, you could overlook businesses that will turn out to be great investments for those who buy in now.
Image source: Getty Images.
Still worthy of the buzz
Professional and retail investors alike have fled in droves from Canadian marijuana producer Aurora Cannabis (ACB +2.91%). While its stock had already lost around two-thirds of its value since it spiked higher this spring, it took another drubbing last week after it delivered a fiscal 2020 first-quarter report that showed the amount of product it sold had plunged and the prices it received had tumbled.
Red tape at both the federal and local levels is limiting the number of retail outlets for legal marijuana, which is squeezing the pot producer, so the outlook for an immediate turnaround of its flailing business isn't bright. Further, Aurora still needs to contend with two big hurdles: it has convertible notes coming due in March, and potentially will have to take large writedowns of the goodwill it is carrying on its balance sheet.
Aurora appears to be dealing with the first issue by offering noteholders the chance to convert their notes into stock at a discount. That could work out to be a good deal for both sides if the company can convince enough to take up the offer, because it means the marijuana producer won't have to dilute its stock as much to pay the holders of the notes. The goodwill issue might be a stickier wicket, and could serve to depress shares for a while -- but that's what creates the opportunity for investors now.
The Canadian marijuana market still holds enormous potential, and though the government is moving at a glacial pace, the issues will be resolved. Aurora Cannabis has massive production capabilities and can achieve economies of scale beyond those of most other producers, which will reduce its costs. Patient investors can buy the stock at the current big discount, and look forward to reaping the rewards later when Wall Street once again recognizes this company's potential.
A fruit that's beginning to ripen
BlackBerry (BB +7.23%) was once virtually synonymous with must-have smartphone models, but those days are long past. It's personal devices, farmed out to third-party manufacturers, have become an afterthought in the space. It's perhaps a telling point about the state of affairs that former CEO Thorsten Heins back in 2015 accused the iPhone of being "outdated."
Although time has passed BlackBerry by, and the company was mostly out of sight and out of mind for years, it came back strong in 2017, and its stock reached a recent peak to start off 2018. Since then, however, it's been back on a long downward trajectory, due to slowing sales and a turn toward operating losses. Yet with over $1 billion in cash and equivalents on the books, it remains on financially sound footing.
BlackBerry today is a leader in providing security for the 5G networks that the major telecoms are rolling out, which bring with them new concerns in both hardware and software. This is especially relevant as regards the rapidly expanding Internet of Things, which is creating new avenues for innovation, but also fresh opportunities for criminal activity.
A year ago, BlackBerry acquired artificial intelligence cybersecurity firm Cylance to address those issues, and it will use AI and machine learning to create solutions that will thwart the infiltration of smart devices, including connected vehicles, where safety rides shotgun to security. Gartner estimates there will be over 250 million connected vehicles on the roads worldwide by 2020.
Cylance is just one of the BlackBerry assets that have convinced at least one analyst that the tech firm has little room left to fall, and while he's not staking out a bullish stance, he sees far more upside than downside to the stock. The market apparently doesn't agree with him, but that provides investors a chance to get in on BlackBerry stock before the crowds come back.
Taking up the slack
Workplace technology specialist Slack Technologies (WORK +0.00%) was one of those unicorn stocks that went public and immediately cratered. On the day of its IPO, it opened at $38.50 per share, but today, it's going for about 60% of that as the threat from Microsoft (MSFT +0.66%) seems greater than many originally imagined.
Where Microsoft Teams is free to use for companies, or is available at low cost, Slack charges a fee to sit at the table. So although the collaborative communications company has made genuine strides to reach this point in its life cycle, advancing to the next stage by penetrating enterprise-level businesses will be significantly more difficult.
While that's the thinking on Wall Street, Slack continues to show both strength and growth. It reported that last quarter, its daily average users jumped 20% from 10 million to 20 million, even though businesses could get Teams for free. Despite the fact that Microsoft is giving away its software, Teams had 13 million users, and a good number of those were just customers of its Skype for Business product that had switched. Slack's performance was likely due to the level of engagement it generates, with 5 billion activities performed each week.
Slack is due to report third-quarter results on Dec. 4, and its forecast is for revenues nearly 50% higher than the year-ago period. That level of resilience in the face of a large competitor that's scrambling to stop its ascent bodes well for its ability to make additional gains. And that means that at its current depressed share price, it's a stock that long-term investors ought to consider.
