2 Beaten-Down Stocks Due for a Massive Bounce

Here are two battered stocks that I believe are overdue for a huge bounce.

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Beaten-down stocks and falling knives aren’t for the faint of heart, especially in this kind of market, where punishments for being caught on the wrong side of a trend can be severe. For venturesome investors willing to take a chance for a shot at greater value, though, there are many hard-hit TSX stocks out there, many of which seem oversold on short-term noise. Indeed, at times it can be tough to tell the difference between noise and serious issues that could weigh on longer-term fundamentals. In the heat of the moment, when emotions could take control of one’s investment decisions, it’s oh, so much tougher to tell if you should cut your losses, double down, or just hang on for dear life, as many Redditors put it.

Remember, few people made or saved money by acting on emotions, especially fear. Emotion-based investing can be incredibly dangerous. As such, investors should ensure they have a clear mind and have conducted a thorough analysis of a company to determine if things weighing down a stock are worthy of a selloff. If the headwind or negative fits the punishment, a stock may not be worth buying on the way down. That said, if a negative is transitory in nature, a stock’s punishment may not be fitting of the crime, leaving investors an opportunity to pay less to get more, so to speak.

In this piece, we’ll check out two battered stocks that I believe are overdue for a huge bounce. While I view them as significantly undervalued, each name could continue tumbling further into the abyss over a wide range of issues that are fresh in the minds of many investors. If you’re going to be a buyer, proceed with caution and ensure you’ve got a long-term time horizon, because both names will be tough to trade.

Goodfood Market

Shares of Canadian meal-kit delivery firm Goodfood Market (TSX:FOOD) are now oversold beyond belief, with the stock fresh off a nearly 75% peak-to-trough decline. Undoubtedly, shares of the momentum stock have reversed viciously, and those caught chasing are now facing steep losses. The company is bleeding cash again, and macro conditions are no longer in its favour, with economic reopenings going on over the past several months.

At $4 and change per share, I find Goodfood to be a bargain fit for those who have strong stomachs. Why? I don’t think we can 100% rule out full lockdowns in the new year. Indeed, the return of such a tailwind could propel FOOD stock back to its high. Regardless, I find shares to be so beaten down such that the bar will not be hard to pass, even if COVID were to be eliminated (unlikely). Sure, Goodfood has been under pressure, but once the tides change, the upside bounce could be sizeable.

Canopy Growth

It’s been a while since the cannabis trade heated up. These days, it’s all about Bitcoin and Dogecoin. Still, for those bullish on the longer-term prospects of the industry, now is as good a time as any to get in a top player like Canopy Growth (TSX:WEED)(NYSE:CGC), with momentum-chasing speculators and investors now out of the stock.

Prior to the cannabis bubble burst, I’d warned that cannabis was a mere commodity — a commodity that faced extreme downward pricing pressure post-legalization. Now that WEED stock is over 70% lower than its highs, I think there are some things to get excited about, most notably the premium brands, improving production economics, and the prospect of cannabis legalization in the U.S.

Canopy has been a brutal hold. It seems like dead money. But for long-term thinkers, it’s tough to ignore the low price of admission. For now, it’ll be a falling knife, but once tides turn, the stock could really rocket.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends Goodfood Market Corp.

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