Buying stocks on weakness is a natural extension of the “buy low, sell high” philosophy at the heart of successful investing. That’s because one of the easiest ways to buy low and sell high is to purchase stocks that unjustly and/or excessively dropped. Such declines happen often, primarily because the Street tends to overly focus on the short-term and minor challenges while downplaying firms’ tremendous strengths and huge, longer-term opportunities.
One recent example of this tendency involves Chinese electric vehicle (EV) maker Xpeng (NYSE:XPEV). XPEV stock tumbled from over $50 in December 2021 to $7.07 in November 2022 because the number of EVs it delivered was declining sharply amid tough competition and the weakness of the Chinese economy. But Wall Street was ignoring the huge edge Xpeng had in semi-autonomous driving over its competitors. As a result of that edge, XPEV was able to conclude a huge deal with Volkswagen (OTCMTKS:VWAGY). That news caused XPEV stock to soar to over $23. Obviously, investors who bought XPeng near its lows and sold the shares near their highs did very well.
Here are the three best stocks to buy on weakness now.
American Superconductor (AMSC)
American Superconductor (NASDAQ:AMSC) stock sank about 20% from Aug. 7 to Sept. 8, despite the company’s huge, longer-term opportunities.
First, AMSC supplies electrical control systems used in wind turbines. Its key wind-energy partner, India’s Inox Wind, is clearly ramping up its utilization of AMSC’s products, while Inox’s overall business is growing sharply.
On May 31, American Superconductor announced it obtained almost $20 million in orders from Inox Wind. On July 29, Inox announced its sales soared 65% in its fiscal first quarter versus the same period a year earlier. Taken together, this data strongly indicates that AMSC’s revenue from Inox is poised to climb a great deal in the coming months.
In April, AMSC announced it was chosen by the U.S. Navy to provide “a pre-production High-Temperature Superconductor (HTS) Magnetic Influence Mine Countermeasure Payload System.” Additionally, the Navy ordered AMSC’s New Energy Power Systems which will furnish “efficient and reliable shore power to Navy vessels,” Daniel McGahn reported.
AMSC appears to be building a strong, enduring growing relationship with the Navy that will greatly boost the company’s financial results in the coming quarters and years. These qualities make it one of the best stocks to buy on weakness now.
Darling Ingredients (DAR)
Darling Ingredients (NYSE:DAR) stock pulled back over 16% from its July high of nearly $70 after the company reported slightly weaker-than-expected second-quarter results on Aug. 8.
Still, Darling’s top line climbed 6% versus the same period a year earlier, while its EBITDA, excluding certain items, came in at an impressive $526.8 million.
Moreover, it shows the potency of the company’s renewable diesel joint venture with Diamond Green Diesel, the latter of which generated record totals of “more than 387 million gallons of renewable diesel sold at approximately $1.28 per gallon EBITDA.” The partnership provided the company with a total of $163.6 million of cash dividends between Q2 and just after the quarter close.
As I’ve pointed out in previous columns, the joint venture is slated to start selling “470 million gallons per year of [sustainable airlines fuel] SAF…starting in 2o25.” Given airlines’ huge demand for SAF, I continue to believe the latter project will be very lucrative for Darling.
DAR stock has a tiny, very attractive forward price-earnings ratio of 8.7.
MGM Resorts (MGM)
MGM Resorts (NYSE:MGM) is down over 14% from its July high of over $50. Yet Las Vegas, where many of the company’s casinos are located, continues to thrive, and its BetMGM joint venture is still growing rapidly –generating positive EBITDA.
In July, Nevada’s casinos reported an all-time high of $1.4 billion of casino revenues. That was 7% higher than during the same period a year earlier.
During the first half of 2023, BetMGM’s revenue from the states in which it operated one year ago jumped 25%, and the company generated positive EBITDA in Q2. It expects to report positive EBITDA for the second half of 2023.
Over the longer term, the combination of Las Vegas’ strength and BetMGM’s impressive growth and positive cash flow should drive MGM stock higher.
On the date of publication, Larry Ramer held long positions in AMSC, DAR and MGM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.