We recently compiled a list of 10 Worst Performing Stocks to Buy on the Dip. In this article, we will look at where Celsius Holdings, Inc. (NASDAQ:CELH) ranks among the worst performing stocks to buy on the dip.
Capital markets demonstrated increased volatility starting in August 2024 and continuing in September 2024. That being said, strong rallies followed numerous negative performance days. Therefore, these movements have helped keep the stocks moving in an overall positive direction. Market experts believe this is a great time to invest in equities. For those having money in cash, the current juncture provides an opportunity to put capital to work in the longer-term assets.
Wall Street experts believe that the markets are concerned about the signs of economic softness. The experts continue to assess how quickly the US Fed will respond to it through the adjustments in the interest rate policy. With the US Fed starting to cut the key policy rates, global money managers continue to figure out whether it is too late, or will the actions support the broader economy and continued corporate earnings growth. The economic environment has now been changed, with inflation falling and the job market appearing to be modestly weaker. The market experts believe that equity market leadership saw a drastic shift, with tech stocks seeing a modest, third-quarter retreat after leading the market’s surge since late 2022.
Q3 Market Rotation and Market Drivers Moving Forward
As per the US Bank, a subsidiary of the U.S. Bancorp, there was a major Q3 shift that took place in the S&P 500. The bank highlighted that the once-dominant technology sectors (IT and communication services), which outpaced other sectors in 2023 and in H1 2024, gave up some gains. As a result of an easing interest rate environment, the investors decided to shift their focus. The US Bank went on to highlight that the biggest Q3 beneficiaries were real estate and utility stocks.
Moving forward, inflation, labor market trends, business spending patterns, corporate earnings, and stock valuations are likely to dominate the broader US equity market. The US Bank mentioned that Q2 2024 earnings saw an increase of over 10% as compared to Q2 2023 earnings. Despite the challenges related to a slowing economy, the earnings expectations have not been changed. Notably, the markets continue to expect continued earnings growth through the remainder of 2024 and 2025. As per the earnings insight report by FactSet (dated September 20, 2024), for Q3 2024, the estimated (YoY) earnings growth rate for the S&P 500 stood at 4.6%. While analysts are expecting YoY earnings growth of 10.0% for CY 2024, they expect ~15.2% for CY 2025.
Amidst Volatility, Markets Will Experience Swift Recovery
The initial seven months of 2024 saw the broader market move forward, with only modest interruption or volatility. After a tough August start, the stocks recovered quickly, and the broader markets again ended the month in positive territory, only to start September on a volatile note. Most of the volatility stemmed from the expectations of a series of Fed rate cuts. This can be considered as the big driver for the broader market, mainly when the economic focus pivots to labor market conditions instead of inflation threats.
Amidst the broad-based volatility, market experts opine that large stocks were able to retain their advantage.
In July, there was an outperformance by the small stocks as the Russell 2000 Small-Cap Index gained over ~10%, compared to a ~1% gain for the large-cap S&P 500. This was mainly because of the prospects of Fed rate cuts, which led to the short-term shift into smaller stocks. However, the rotation to smaller-cap stocks was again sidetracked in August, with the S&P 500 again outperforming mid-cap and small-cap stocks. Over the past month, the Russell 2000 Index saw an increase of ~0.3%, while the S&P 500 Index went up by over ~2%. This demonstrates that, amidst volatility and macro-level changes, well-established stocks should be favored as they provide reasonably good entry points.
Our methodology
To list the 10 Worst Performing Stocks to Buy on the Dip, we used a Finviz screener and online rankings to filter out the stocks that have fallen significantly on a YTD basis. Finally, we ranked the stocks according to their potential upside, as of September 27. We have also included the number of hedge fund holders for each stock, as of Q2 2024, which we sourced from our database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Celsius Holdings, Inc. (NASDAQ:CELH)
Average Upside Potential: 53.70%
% Fall on a YTD Basis: ~44%
Number of Hedge Fund Holdings: 27
Celsius Holdings, Inc. (NASDAQ:CELH) is engaged in developing, processing, marketing, distributing, and selling functional energy drinks and liquid supplements.
The stock price of Celsius Holdings, Inc. (NASDAQ:CELH) saw significant selling pressure on the YTD basis as a result of the competitive beverage sector and a shift in consumer trends. The company has been subject to a challenging environment because of an expected increase in promotional discounting and a slowdown in the US retail trends. Collectively, these factors might impact the company’s topline numbers for 2024 and 2025, resulting in a cautious outlook. Moreover, the company continues to challenges related to the financial adjustments as a result of inventory reductions by PepsiCo. This might weigh over the sales and EBITDA for the upcoming quarters.
On the other hand, Wall Street experts opine that the current juncture of Celsius Holdings, Inc. (NASDAQ:CELH)’s stock offers a strong value-buy opportunity. They believe that Celsius Holdings, Inc. (NASDAQ:CELH) should be able to maintain its position as the category growth leader and expand its shelf presence. The company’s strong partnership with PepsiCo and a strategy to execute growth-driving programs should continue to act as tailwinds, which might get reflected in the stock price moving forward.
Celsius Holdings, Inc. (NASDAQ:CELH) plans to invest in growth and monitor raw material costs, and it is aiming for gross margins in the high 40s – 50s range in H2 2024. The company has also announced new flavours and market expansions, which include the UK, Ireland, Australia, New Zealand, and France. Celsius Holdings, Inc. (NASDAQ:CELH) targets to stabilize and grow the market share via strategic investments and promotions.
As per Wall Street, the shares of Celsius Holdings, Inc. (NASDAQ:CELH) have an average price target of $49.31. As per Insider Monkey’s 2Q 2024, 27 hedge funds (out of 912 tracked by Insider Monkey) held stakes in the company.
Fred Alger Management, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:
“Celsius Holdings, Inc. (NASDAQ:CELH) engages in the development, marketing, sale, and distribution of functional drinks and liquid supplements. It also offers post-workout functional energy drinks and protein bars. During the quarter, shares detracted from performance after the company reported fiscal first quarter revenues below analyst estimates. The revenue shortfall was attributed to ongoing inventory management challenges with PepsiCo, which decelerated year-over-year revenue growth from over 100% to approximately 37%. Despite the near-term growth slowdown, we believe Celsius remains well positioned to potentially capture market share within the large energy and soft drink industry over the long-term.”
Overall CELH ranks 7th on our list of the worst performing stocks to buy on the dip. While we acknowledge the potential of CELH as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than CELH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published on Insider Monkey.