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The Anti-Bubble: 3 Underdog Stocks Ready to Pop Once Sentiment Flips

Forget the outgoing year’s flavors of the week if you want to see sizable growth in your portfolio; instead, go the contrarian route and consider so-called underdog stocks. These may be the disappointments of 2023. Nevertheless, it’s sometimes the ideas that investors least expect that offer the biggest positive surprises.

Let’s remind ourselves what happened throughout most of this year. Risk-on sentiment existed but concentrated largely on certain players in the artificial intelligence arena. And in the so-called “Uptober” season, the cryptocurrency sector skyrocketed. Invariably, that left several enterprises falling by the wayside.

And we’re not talking about some garbage ideas that slipped under the radar, though that’s part of the picture. Rather, solid enterprises – companies that enjoy bullish endorsement by Wall Street analysts – also fell out of favor.

But these are good companies that just encountered a rough patch. Below are enticing underdog stocks that can deliver the goods in 2024.

Yum China (YUMC)

A banner for Yum China (YUMC) decorates the New York Stock Exchange.Source: rblfmr / Shutterstock.com

What it is: A fast-food company based in Shanghai, China, Yum China (NYSE:YUMC) operates thousands of restaurants in over 1,100 cities in the target nation. As well, it owns the distinction of having a footprint in every province and autonomous region in Mainland China.

Relevance: According to GlobalData, the Chinese food-service sector reached a valuation of about $841.6 billion in 2022. Further, experts project that the segment could expand at a compound annual growth rate (CAGR) of 3% from 2022 to 2027. Now, to get further information, I’m going to have to fork over $5,000 which I’m not going to do. But you get the idea: it’s a massive market.

Pros: Aside from a blip in the fiscal year ended December 2014, Yum China has consistently posted net income over the past decade. And while revenue growth declined last year compared to 2021, on a trailing-12-month (TTM) basis, sales stand at $10.57 billion, up 10.5% from 2022. Thus, it makes for an intriguing example of underdog stocks.

Cons: You’d have to consider the stability of China’s consumer economy before diving in heavily.

Opal Fuels (OPAL)

Renewable natural gas image inside clear piggy bank.Source: InvestorPlace

What it is: A fully integrated, nationwide leader in the production and distribution of low-carbon intensity renewable natural gas (RNG), Opal Fuels (NASDAQ:OPAL) may entice investors considering forward-looking underdog stocks. Shares lost about 25% in the trailing 52 weeks.

Relevance: According to Business Research Insights, the global RNG market size reached a valuation of $8.09 billion in 2022. Further, the sector may hit $215.38 billion by 2031. That comes out to a CAGR of 44%, which is extraordinary. Granted, Opal Fuels represents a risky enterprise. Still, with only a market capitalization of $933.4 million, it may not need much to eventually skyrocket.

Pros: Financially, Opal prints a three-year EBITDA growth rate of 78.6%, which is impressive. Analysts also peg shares a moderate buy, anticipating an average price target of $10.27 over the next 12 months. That comes out to upside potential of over 89%.

Cons: Unfortunately, Opal suffers from five red flags regarding financial vulnerability. Also, revenue growth has stagnated recently.

New Found Gold (NFGC)

A photo of a gold nugget on a table, being picked up by tweezers, with more gold behind it.Source: aerogondo2 / Shutterstock.com

What it is: Appropriate only for the extreme speculator, New Found Gold (NYSEAMERICAN:NFGC) is a gold exploration and mining firm. According to its website, the company has made several high-grade gold discoveries along the Appleton Fault Zone (in Newfoundland).

Relevance: Suddenly, the barbarous relic is starting to look quite interesting again. Based on average spot price data provided by Stockcharts.com, gold currently trades at around $2,069. Fundamentally, the prospect of the Federal Reserve lowering the benchmark interest rate boosted the precious metals. To be clear, policymakers have yet to make a definitive statement on the issue. But if borrowing costs decline, that should be positive for gold and related investments.

Pros: Financially, New Found Gold prints a cash-to-debt ratio of 360.7x, which is better than average for the sector. Also, analysts rate shares a moderate buy with an $8.18 average price target. If it hits, we’re talking 134% upside, making it one of the underdog stocks to buy.

Cons: With all due respect, gold exploration companies can be irrationally dangerous.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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