Three Underperforming Shares with Potential for Significant Gains in 2025
It appears that the market is set to conclude the year on a victorious note. With only a week left, the S&P 500 is surging by 25%. Factors contributing to this growth include a decrease in interest rates, moderating inflation, and a display of economic resilience.
A few stocks that have been performing well this year are still poised to carry on their success. However, others that have not been as fortunate for investors could experience a comeback. Stocks such as Wayfair (-1.91%), Opendoor Technologies (-2.34%), and Disney (-0.89%) are currently underperforming but could potentially rebound in 2025.
1. Wayfair: Home Furnishings dominated by technology
Wayfair specializes in home furnishings, but it offers a platform similar to Amazon, featuring a variety of products at various price points. The company has a unique business model, as it focuses on dropshipping, meaning it does not maintain inventory but serves as a platform for suppliers. Wayfair boasts a significant online presence, selling to over 21.7 million active customers, with a revenue of $11.9 billion.
Despite its considerable size, Wayfair has struggled with losses for some time. However, it has made progress towards turning a profit. In the third quarter, its earnings before interest, taxes, depreciation, and amortization (EBITDA) exceeded equity-based compensation and capital expenditures by nearly $100 million. This impressive achievement was impressive given the tough economic conditions under which Wayfair is operating. The poor housing market has negatively affected home furnishings companies, and not just Wayfair.
But with its substantial online presence and adjusted focus, Wayfair is well-positioned to recover as interest rates decrease. Although the Federal Reserve has recently indicated that rate cuts may be slower than anticipated, rates have already begun to drop, and this could continue into 2025. As interest rates ease and the housing market revives, Wayfair stock could potentially generate significant returns in 2025.
2. Opendoor: Revolutionizing the real estate market
Opendoor, like Wayfair, is experiencing similar pressures. However, it is directly affected by a weak housing market, which has negatively impacted its stock price. Unlike Wayfair, Opendoor buys and sells properties rather than relying on a dropshipping model. Although this is a capital-intensive business, Opendoor is making progress.
In the third quarter, Opendoor's revenue increased by 41% compared to the previous year, despite remaining below its all-time highs. Opendoor sold 3,615 homes, a 35% increase from the previous year. It also had 6,288 homes in inventory at the end of the third quarter, a 64% increase from the previous year, presenting a strong opportunity for sales in the new year.
Although the housing market hasn't shown significant improvement yet, Redfin data suggests that home sales increased by 4.4% year-over-year in November. Lower interest rates and delayed buying and selling decisions could potentially alleviate some pressure in 2025. If this happens, Opendoor could experience a strong turnaround, and its stock will reflect this improvement.
3. Disney: Streaming service success
Disney is a global entertainment powerhouse, but its stock remains 45% below its all-time highs. A multitude of factors, including the closure of its theme parks and streaming losses, have contributed to its unstable performance. However, Disney has been making strides in its streaming service.
For the first time, Disney's streaming service was profitable during the 2024 fourth quarter, which was the company's long-term goal since the launch of Disney+ five years ago. The fourth quarter's entertainment segment operating income reached $1.1 billion, significantly exceeding the $236 million reported in the previous year. Disney's streaming service has also added 4.4 million subscribers, putting it in an advantageous position for 2025.
Disney has also demonstrated its ability to produce blockbuster films, with Inside Out 2, Deadpool & Wolverine, and Moana 2 among its top-grossing films in 2024. As the company prepares to enter 2025, it has a strong lineup, including Captain America: Brave New World, Lilo & Stitch, The Fantastic Four: First Steps, Zootopia 2, and Avatar: Fire and Ash. Investors debating whether to invest in Disney stock may find this an opportune moment to do so.
In light of the market's positive trend and potential interest rate cuts, investors may consider reinvesting in underperforming stocks like Wayfair, as its significant online presence and adjusted focus could lead to significant returns in 2025.
In the real estate sector, Opendoor could potentially experience a strong turnaround in 2025, reflecting the improvement in the housing market, which is suggested by an increment in home sales and lower interest rates, according to Redfin data.
