Past performance is not always the best indicator of a stock's prospects. Stocks that have fallen sharply in 2024 could be next year's big winners. For investors who are considering adding such companies to their portfolios, it's important to pay close attention to the things that are driving those businesses -- and particularly, those catalysts that could in time justify a higher share price.
For those looking for stocks that could rise substantially in 2025, here are three oversold stocks that I feel are due for monster rallies.
Opendoor Technologies (OPEN -1.61%) is a leading digital platform for buying and selling residential real estate in a way that removes a lot of the hassle from the process. Its promising growth story has been tripped up recently by the slump in the housing market, but that is providing investors with an opportunity to invest in the company at a bargain price.
The total value of residential real estate transactions was $1.6 trillion in 2023. Digital real estate platforms like Opendoor captured less than 1% of that. The company's potential for growth is enormous.
A lot of macroeconomic factors affect housing demand, but in recent years, the combination of higher inflation, the boost in interest rates that was instituted to combat that inflation, and an overall shortage of housing nationally has put home purchases out of reach for many people who would buy if they could. In 2021 and 2022, Opendoor's revenue soared amid a stronger housing market. However, this year, Wall Street expects the company's revenue to fall by 25%. Yet Opendoor's business could rebound as interest rates come down, making mortgages more affordable. Analysts currently expect its revenue to grow by 42% next year.
The stock trades at a price-to-sales (P/S) ratio of just 0.28, which is cheap for the average business. Opendoor could easily warrant a P/S multiple of 1 in a strong housing market.
The risk is that it's uncertain when the housing market will bounce back, but the Federal Reserve's recent move to cut the federal funds rate by 50 basis points (0.5 percentage points) and its forecast for further cuts over the next year suggests that there's a strong chance that mortgage rates will fall in the near term. That could serve as a catalyst for a rebound in housing sales. Opendoor is a housing stock that will surely deliver monster returns when the tide turns.
As renowned investor Peter Lynch demonstrated as a mutual fund manager in the 1980s, investing in fast-growing restaurant brands while they are small can produce huge returns. Fast-growing beverage chain Dutch Bros (BROS 0.29%) could be the next up-and-coming restaurant stock that delivers tremendous wealth for early investors.
With a menu focused on coffee and an array of other beverages, Dutch Bros was founded more than 30 years ago, but has been going full throttle since completing its initial public offering (IPO) in September 2021. It has a great culture built around friendly service and promoting new shop managers from within the company's ranks. It has consistently reported about 30% or higher annual revenue growth and is opening new shops while reporting a small profit.
The stock today sits slightly below where it closed its first day of trading. But the business's steady growth since then means the shares are offering much better value. Its growth potential is also attractive. Dutch Bros was operating just 912 locations as of June 30, but the company has a long-term goal of expanding its footprint to 4,000 shops.
Even in the current challenging economy, Dutch Bros reported a 4% year-over-year increase in same-shop sales last quarter, and management's full-year forecast is for same-shop sales to increase, too. It could grow faster in a strong economy, but you don't want to wait for those conditions to arrive before you buy the stock, because it will likely be trading much higher by the time those macro conditions kick in.
Wall Street is underestimating the company's growth potential. Consider that Starbucks stock has traded at an average P/S multiple of 3.7 during the past 10 years, but this faster-growing coffee stock is trading at a P/S multiple of just 2.5.
Walt Disney (DIS -0.68%) is a timeless brand that has entertained families for a century. More than 17 million people visited the Magic Kingdom theme park at Walt Disney World in 2023, according to Statista -- and that's just one among its many theme parks. That helped Disney's experiences segment rake in $33 billion in revenue for the year.
The stock fell out of favor on Wall Street during the past few years due to the company's weak financial results. Its Disney+ streaming service has more than 118 million subscribers, but to attract all those viewers, it has spent aggressively on content, which ate a hole in Disney's bottom line. That sent the stock tumbling and now trades about 52% below its peak.
There have been at least three episodes in the past 50 years when the stock fell by 50% or more from its peak. Each of them proved to be a timely buying opportunity. After all those peaks and valleys, Disney's growth would have turned a $1,000 investment in made 1972 into $70,000 today (with dividends reinvested).
It's likely that Disney stock will rebound in 2025. Analysts expect the company's earnings to increase next year and forecast 14% annualized growth in the coming years. With the stock trading at a reasonable forward price-to-earnings ratio of 18.5, the shares offer solid value.
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