You're familiar with the "Dogs of the Dow" investing strategy, right? Buy blue chip stocks that are down on their luck, indicated by a very high dividend yield. Watch the blue chips get back on their feet and start counting your gains.
It's not a magic formula for beating the market, but some investors swear by it. What if we tweak this idea a bit, though? An automated stock-picking formula could help me find undervalued stocks on the tech-heavy Nasdaq stock exchange.
The tweaked idea is that recent underperformers could be set up to beat the market over the long haul. Some price-lowering issues are temporary, after all. The volatile nature of the Nasdaq exchange could help me find some real zingers here.
Image source: Getty Images.
Step one is a simple stock screener.
The tech-focused Nasdaq exchange is far more volatile than the Dow Jones Industrial Average (DJINDICES: ^DJI), so let's use a shorter performance period to find our beaten-down stocks, such as the month of April. Most of these stocks don't pay dividends yet, so I'll just sort my stock list by their price performance in April. And if I don't limit this screener a bit, I'll end up with a bunch of microcaps that fell 90% or more -- not the best material for a long-term rebound. I'll set the minimum market cap at $2 billion to avoid that situation.
That's 670 tickers with April performance ranging from a 47% price drop to a 61% gain. They span a variety of sectors, and I can't claim to be an expert in every field, but I can lean on the expertise of my Fool peers as necessary.
And, of course, I don't recommend auto-investing in the worst performers of the Nasdaq -- or any exchange, market index, industry, et cetera -- without reviewing each stock's long-term prospects.
On that note, here are the three worst performers on the Nasdaq in April 2024. Let's kick their tires a bit, see if they seem ready for a bullish run after their sudden price drops.
Are there any hidden gems in this collection of underdogs, spring-loaded to deliver impressive returns from a temporary dip?
VinFast Auto, down 47% in April
The first name on my list of Nasdaq's biggest dips is VinFast Auto (VFS 10.41%), a Vietnam-based maker of electric vehicles. The company entered the stock market with a bang last summer, using the special interest acquisition company (SPAC) route. It soared 830% higher in the first two weeks, and its market cap topped out at $191 billion.
But then it shifted into reverse.
Today, VinFast is only worth about $7 billion -- and many investors still think it's overvalued. The company has a tendency to underperform analysts' consensus targets, including another disappointing report in April.
I want the company to succeed, adding a diverse twist to the electric car market, but VinFast is not off to a good start. Fellow Fool Rich Smith worries that VinFast may run out of cash "in a matter of weeks," and I don't see a buying opportunity under these dire circumstances.
MicroStrategy, down 35% in April
Let's move on to MicroStrategy (MSTR 10.04%). The enterprise software company has converted its cash reserves into Bitcoin (BTC -0.14%), with quite a bit of gusto. MicroStrategy has taken on new debt, sold some shares on the open market, and generated free cash flows from its software business -- and it seems like every spare penny is spent on more Bitcoin.
As a result, the company's business results have become highly unpredictable and tightly connected to the crypto market. Bitcoin prices fell 10% in April, so it's no surprise to see MicroStrategy's stock follow suit. And the sharpest price cut of the month came at the very end, based on an extremely disappointing earnings report.
Your average analyst expected bottom-line earnings of roughly $0.33 per share, down from $30.59 per share in the year-ago period. Instead, MicroStrategy reported an $8.26 loss per share. The company elected to account for its Bitcoin holdings at a much lower asset price than the actual market value at the time, generating an asset impairment expense of $192 million. At the same time, MicroStrategy took on two rounds of new debt papers to buy another $1.65 billion of additional Bitcoin.
If you're a big believer in Bitcoin becoming "digital gold" in the long run, you should take a sniff at MicroStrategy's stock when it's down. But you better be prepared for some sudden price swings, as the steady flow of cash-based Bitcoin investments adds a lot of financial risk to the stock.
Saia, down 32% in April
Less-than-truckload (LTL) shipping expert Saia (SAIA -2.13%) is a pretty simple story. The company reported first-quarter results on April 26. It fell just short of Wall Street's consensus estimates across the board.
The bottom-line miss was essentially a rounding error, but Saia fumbled the revenue line with a 2% shortfall. That may not sound like much, but it's a significant error in the predictable transportation sector. At the same time, longtime CFO Douglas Col announced his retirement. Turnover in the C-suite is rarely good news, even if the executive leaves on good terms.
Add it all up, and you get a 21% drop in Saia's stock price that day.
Management explained the weak results with harsh winter weather, well within the framework of typical seasonality. The company continues to expand, building four new terminals in the first quarter and planning to keep that investment pace throughout 2024.
Saia is one of the largest and most profitable companies in its sector. The stock is currently up 600% in five years, including the sudden price correction in April. If you were just waiting to invest in this high-quality company at a lower stock price, this could be the chance you were looking for.
So, I found two potential buys in Saia and MicroStrategy, but I wouldn't touch VinFast's stock with a 10-foot car charger. There just might be some value in this bargain-hunting idea after all.
