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5 stocks that are back from the dead

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FILES-CANADA-HEALTH-VIRUS-VACCINES

Everyone loves a comeback story: the underdog fighting back for a victory; the unloved character suddenly becoming the big hero.

In the stock market, a back-from-the-dead story is equally appealing. Stocks that have been left for dead, or at least seen as dead money, can garner huge profits for investors if they start rising like a Phoenix from the ashes.

This makes sense. Not many investors are interested in a company that might not make it. Thus, sellers are everywhere and stocks can go down 80 per cent, 90 per cent or even more in such instances. But when they recover, oh boy, that can be fun.

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The ultimate example here is Apple Inc. In 1996, Apple reported a net US$816-million loss, and by 1997, its reserves had decreased to a dangerously low level, bringing the company close to bankruptcy. Apple’s turnaround began with the return of Steve Jobs in 1997. Everyone knows the story after that. Apple’s stock (split-adjusted) was 12 cents U.S. in late 1997. It is US$190 today.

Let’s look at five companies that were either really struggling and might have died or had struggling stock prices that suddenly reversed direction. Maybe there are opportunities or at least lessons for investors here.

Novavax Inc.

This clinical-stage biotech company’s stock surged during the COVID-19 pandemic as it was given huge grants from the government in order to develop vaccines. But its vaccines were late to market, and it has never been able to make money. It lost US$23.44 per share in 2021, and cumulative company losses have totalled about US$4 billion since 2016. Earlier this year, the company’s auditors put out a “going concern” note, indicating the company might not be able to survive. The stock was US$3 earlier this year.

But in May, Sanofi SA showed up out of the blue and gave Novavax a US$1.4-billion licensing deal to develop a combo COVID-19-influenza vaccine. The deal includes US$500 million in upfront cash. The stock rose 150 per cent over two days and is now up 223 per cent in 2024. The auditors have subsequently withdrawn the going concern warning.

Celestica Inc.

This designer and manufacturer of electronic components wasn’t really close to dead, but its stock certainly acted like Bernie from Weekend at Bernie’s. Celestica stock was a classic value trap for many, many years. It couldn’t hit an earnings forecast if it tried, and investors gave it an earnings multiple of seven or eight times. It was kicked out of the prestigious TSX 60 index. Its stock hit $3.41 in 2009.

A year or two ago, Celestica started to put together some decent numbers. It started hitting earnings targets. Growth looked better. And then the artificial-intelligence frenzy hit. Celestica isn’t really an AI play, but its customers certainly are. In Canada, there are not many large companies with an AI focus, so Celestica has become an AI proxy. The result: the stock is up 357 per cent in the past year and 109 per cent this year alone. Its valuation has doubled, but it is still a (relatively) cheap 18 times earnings.

Carvana Co.

This online platform for buying and financing used cars got caught up in a bizarre market following COVID-19. Used cars were selling for more than new cars for quite a while due to production issues during the pandemic. Thus, Carvana needed to pay a lot more for its inventory, and it started to lose money on every sale when car prices ultimately plunged. It is still losing money, but should be close to breaking even next year.

But during the downturn, investors looked at the company’s US$8 billion in debt during a time of rising interest rates and questioned the company’s survival. Its stock hit US$5 in 2022, but has since surged to US$105 as it got its fundamentals lined up. Up 21 times from its low, it is a nice rags-to-riches (junker-to-Cadillac?) tale. The stock is up 98 per cent this year and 791 per cent on a one-year basis.

Viking Therapeutics Inc.

The clinical-stage biopharmaceutical company still has no reported revenue, but you would never know it from looking at the stock: it is up 251 per cent this year, 206 per cent over 52 weeks and 70-fold from its low of 93 cents U.S. in 2017. What happened to bring this back from the dead? Obesity.

The huge success of currently approved obesity drugs has created an entire new drug platform. Viking has a promising subcutaneously administered obesity drug in Phase II trials that has shown solid clinical results. It has US$963 million in cash to continue development, but it is widely assumed to be a takeover target within the biotech sector, which has also sparked interest in the stock.

PG&E Corp.

This one is a bit different from the recovered stocks above, as the energy company actually went into bankruptcy protection as part of a reorganization process to protect it from liabilities from multiple catastrophic wildfires that were caused by its power lines in Northern California.

Its stock hasn’t quite soared like the others here, but it is back from the dead. The stock hit US$3.80 in 2019 and is now US$18 — not a bad return over five years. It’s now a US$38-billion market-cap company trading at 13 times earnings. It cancelled its dividend in 2017, but restarted it last year (at a much-reduced rate). It remained profitable during its bankruptcy proceedings.

Peter Hodson, CFA, is founder and head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also portfolio manager for the i2i Long/Short U.S. Equity Fund. (5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned.)


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